Working as an Independent Contractor FAQ

Questions:

• What is an independent contractor? Should I become an independent contractor?
• Do I have to pay taxes on my freelance income?
• How much should I charge clients and how can I make sure they pay me?
• Do I need to use written agreements when I do contract work for clients?
• Who decides whether I'm an employee or an independent contractor? What if a government agency determines that I am an employee?

Answer:

Do I have to pay taxes on my freelance income?

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.