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:

What is an independent contractor? Should I become an independent contractor?

An independent contractor (IC) is someone who runs his or her own business. Independent contractors earn their livelihoods from their own businesses instead of depending upon employers to earn a living. Independent contractors are sometimes called consultants, freelancers, self-employed, and even entrepreneurs or business owners.

Unlike an employee who works for one employer, independent contractors typically work for a number of different clients, tackling particular jobs or projects that require special expertise.

There can be many advantages to being self-employed:

• You are your own boss.
• You may be paid more than employees.
• No federal or state tax is withheld from your pay.
• You can take increased business deductions.

Despite the advantages, however, being self-employed is not always a bed of roses. Here are some of the major drawbacks:

• You have no job security.
• You might not get paid.
• You must pay self-employment taxes.
• You may be personally liable for business debts.
• You have no employer-provided benefits.
• You have no unemployment insurance benefits.
• You have no employer-provided workers' compensation.
• You have few labor law protections.

For more information, see Being a Consultant, Freelancer, or Contractor: Pros and Cons.