An independent contractor is a self-employed worker who provides services to others but controls how the work is done, while the client controls only the final result.
Understanding Independent Contractors
In today’s flexible job market, the term independent contractor appears everywhere—from freelance designers and rideshare drivers to consultants and home repair specialists. But what does this mean for taxes and work responsibilities?
An independent contractor is someone who performs services for others without being an employee. Instead of following an employer’s daily instructions, they decide how and when the work gets done. The person or business hiring them only evaluates the final product, not the process.
This freedom comes with different tax rules and responsibilities, making it important for anyone working independently—or hiring independent workers—to understand what this term really means.
What Makes Someone an Independent Contractor?
The IRS uses a few key factors to distinguish independent contractors from employees. The biggest difference is control.
Control of the Work
- Independent contractors control the “how.”
They choose the tools, techniques, schedule, and materials needed to complete the job. - Clients control the “what.”
They request the service and approve the result, but they cannot dictate the contractor’s daily methods or work habits.
For example, if you hire a plumber to fix a leak, you don’t tell them which tools to use or how to perform the repair. You only expect a working sink at the end. That’s independent contracting.
Independent Contractors Are Self-Employed
Being an independent contractor means you are self-employed, even if you have only one client. You operate as your own business, whether formally or informally.
This has major tax implications, including:
- Paying self-employment tax, which covers Social Security and Medicare
- Keeping track of business income and expenses
- Receiving Form 1099-NEC instead of a Form W-2
- Being responsible for paying your own taxes, often through quarterly estimated payments
Unlike employees, independent contractors don’t have taxes withheld automatically from their payments. It’s up to them to plan ahead and set aside money for tax time.
Examples of Independent Contractors
Independent contractors can be found in almost every industry. Common examples include:
- Freelance writers and artists
- Consultants
- Electricians and plumbers
- Rideshare and delivery drivers
- Real estate agents
- Personal trainers
- Web developers
- Photographers
- Tutors and coaches
Each of these professionals offers services but controls their own workflow.
Why the Distinction Matters
Whether someone is an employee or an independent contractor affects everything from taxes to legal rights.
For Workers
Independent contractors:
- Have more freedom and flexibility
- Can work for multiple clients
- Can set their own rates
- Must manage their own taxes, insurance, and retirement savings
For Businesses
Hiring an independent contractor:
- Eliminates the need to withhold payroll taxes
- Reduces costs for benefits, insurance, and training
- Limits liability for employment-related issues
However, businesses must be careful. Misclassifying an employee as an independent contractor can lead to IRS penalties.
A Simple Real-Life Example
Let’s say Tom is a freelance graphic designer. A company hires him to create a new logo but doesn’t control how he works. Tom chooses his own design software, schedule, and creative approach. The company only reviews the final logo.
Because Tom controls the process and operates his own business, he is an independent contractor—not an employee.
Final Thoughts
An independent contractor is a self-employed individual who controls how work is done while the client controls only the final outcome. This role offers freedom and flexibility but also brings extra tax responsibilities. Understanding what an independent contractor is—and how they differ from employees—helps workers navigate their careers and helps businesses follow tax rules correctly.
