The Role of an Independent Contractor

If you work from home, you may be an independent contractor.

Whether you're a business owner or a self-employed individual, you must understand the role of independent contractors. The tax implications for independent contractors vary from those of regular employees.

Definition

The Internal Revenue Service (IRS) defines an independent contractor as someone who uses his own, undirected methods to accomplish a job. The person or business that hires an individual contractor only has the authority to direct the results of the job, not the method by which the contractor accomplishes it.

Role

An independent contractor does not typically have access to insurance, sick days, vacation days or pension plans. The independent contractor's role varies depending on the client's need. The company who hires an independent contractor pays for the completion of a specific project. The contractor creates his own schedule and methods to accomplish the task; at this point, the relationship between client and contractor ends.

Taxes

An independent contractor completes a W-9 form for clients. Clients send a Form 1099-MISC to the independent contractor; this form contains a record of payments. An independent contractor may need to pay self-employment taxes, which consist of 10.4 percent for social security and 2.9 percent for Medicare as of 2011. Self-employed individuals may also need to pay estimated taxes on a quarterly basis.

References

• IRS: Independent Contractor
• IRS: Type of Relationship
• Business.gov: How to Become an Independent Contractor
• IRS: Forms and Associated Taxes for Independent Contractors
• IRS: Self-Employment Tax

Resources

• SBA.gov: Starting and Managing a Business