Independent Contractor

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DEFINITION of 'Independent Contractor'

A self-employed taxpayer that controls his or her own employment circumstances, including when and how work is done. Independent contractors are not considered to be employees and must pay their own Social Security tax.

It is up to the employer to correctly classify each worker as either an independent contractor or an employee.

BREAKING DOWN 'Independent Contractor'

Independent contractors are considered to be sole proprietors of their own businesses and must report all income and expenses on Schedule C of Form 1040 (or Schedule E if they deal in rental property).

Their employers have no control over how and when they work, and do not pay any of their federal insurance contributions (FICA) or federal unemployment taxes (FUTA).

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