Independent Contractor

What is Independent Contractor?

Independent contractor meaning is referred to as the individual or entity under some contract. The contract is usually for providing some services or doing some work for some other person who might be a non-employee. Due to this, independent contractors are expected to pay the respective medical Taxes or Social Security taxes.

Additionally, the given entity is not expected to provide any employment benefits to the contractors –including health insurance and others. The payer is expected to accurately classify each payee in the form of either an employee or an independent contractor. Another common term used for an independent contractor can be a freelancer.

Getting an Understanding of Independent Contractors

Various professionals including dentists, doctors, lawyers, veterinarians, and others requiring independent services are referred to as independent contractors by the IRS (Internal Revenue Service). However, the given category is also known to include subcontractors, contractors, software designers, freelancers, actors, musicians, auctioneers, and many others who are known for providing independent services to the public. Independent contractors are in huge demand during the rise of the “gig Economy.”

For instance, in the United States of America, independent contractors are regarded as single-member LLCs (Limited Liability Companies) or sole proprietors. They are expected to report all the Income as well as expenses on Schedule C (belonging to the Form 1040) or Schedule E in case they have instances of profits or losses from the respective rental properties. Moreover, they are required to submit self-employment taxes to the IRS –mostly on a quarterly Basis with the help of the Form 1040 –ES.

However, in the role of sole proprietors, independent contractors are not necessarily required to pay taxes on the respective gross Earnings. The businesses expenses that are applicable can help in reducing the respective tax obligations. The difference that exists between business expenses and gross income is referred to as the net income. It is the amount on which taxes remain due.

It is expected out of the independent contractors to keep a track of the respective earnings while including every payment that they receive from the clients.

Independent Contractors Vs. Employees

Workers out there are known to be classified as either independent contractors or employees. When an individual happens to be an independent contractor, the employer is capable of controlling only the respective result or quality of the job –not the process in which the work is being implemented. When the individual happens to be an employee, the payer has the right to mandate the fact that output should occur in a specific place and at a fixed time or manner. A business owner is known to have improved control over the entire job’s completion.

As an independent contractor, there are downsides as well. This is because they are provided with no access to payments for worker’s compensations or Unemployment Insurance.