When you work as an independent contractor, you have to pay income tax, just like an employee. Unlike an employee, however, you won't have any taxes withheld from your paycheck to cover income tax, Social Security, and Medicare. Also, unlike an employee, you can't wait until April 15 to pay all of your taxes due for the previous year. Instead, you have to pay estimated taxes four times a year. For more information on estimated taxes, see Paying Estimated Taxes.
Fortunately, contractors can take advantage of some great tax deductions; for instance, the home office deduction can effectively reduce your taxes by a portion of your rent or mortgage. For more information, see The Home Office Tax Deduction.