Independent Contractor

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).

RELATED TERMS
  1. Invitation For Bid - IFB

    When a company or organization provides detailed project specifications ...
  2. Contractor Fraud

    Illegal business practices committed by firms hired to reform, ...
  3. Form 1099-Misc

    Form 1099-Misc is a tax form that reports the year-end summary ...
  4. Captive Agent

    An insurance agent who only works for one insurance company. ...
  5. Sole Proprietorship

    The sole proprietor is an unincorporated business with one owner ...
  6. Federal Insurance Contributions ...

    A U.S. law requiring a deduction from paychecks and income that ...
Related Articles
  1. Entrepreneurship

    Should You Hire Contractors or Employees for Your Small Business?

    Learn the pros and cons of hiring independent contractors instead of regular full-time employees. Find out about a potential risk for severe tax penalties.
  2. Entrepreneurship

    How Does Glamsquad Work and Make Money?

    Learn about what Glamsquad does and how it makes money, including why the rise of the "Uber culture" has made this new luxury beauty business so popular.
  3. Stock Analysis

    Are You Ready for Uber's IPO? 2 Things to Consider

    Learn why ongoing litigation from drivers along with state and local governments could put a damper on what is likely an impending Uber IPO.
  4. Entrepreneurship

    Should You Incorporate Your Business?

    Find out how becoming a corporation can protect and further your finances.
  5. Taxes

    Small Business Tax Obligations: Payroll Taxes

    Don't leave it up to your accountant - owners are ultimately responsible for fulfilling tax obligations.
  6. Home & Auto

    4 Types Of Home Renovation: Which Ones Boost Value?

    You think your updated house looks great, but potential buyers may not feel the same way.
  7. Taxes

    Tax Deductions For Rental Property Owners

    Besides creating ongoing income and capital appreciation, real estate provides deductions that can reduce the income tax on your profits.
  8. Entrepreneurship

    7 Strategies Small Business Owners Should Know

    Use these techniques to make your business stand out from the pack and thrive.
  9. Economics

    What's a Sole Proprietorship?

    A sole proprietorship is an unincorporated business that has one owner who pays the taxes on the profits of that business.
  10. Entrepreneurship

    Get the Best Freelance Rates for Your Work

    Smart strategies for estimating costs, researching fees, pricing projects and getting your rate for a range of clients.
RELATED FAQS
  1. Can LLCs have employees?

    A limited liability corporation (LLC) can have an unlimited number of employees. An employee is defined as any individual ... Read Full Answer >>
  2. Do financial advisors need to meet quotas?

    Most financial advisors are required to meet quotas, particularly if they work for firms that pay base salaries or draws ... Read Full Answer >>
  3. I have a small business, and I'm considering setting up an SEP IRA. What are leased ...

    Generally, a leased employee is the employee of an outside organization from which you lease the employee's services. For ... Read Full Answer >>
  4. What is a family Limited Liability Company (LLC)?

    A family limited liability company (LLC) is formed by family members to conduct business in a state that permits such form ... Read Full Answer >>
  5. What risks does a business owner face under a business structure with unlimited liability?

    The risks that a business owner faces under a business structure with unlimited liability are literally unlimited, but they ... Read Full Answer >>
  6. What's the difference between a financial plan and a financial forecast?

    Selecting the appropriate business structure for a new company can present challenges to an entrepreneur. Considerations ... Read Full Answer >>
Hot Definitions
  1. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  2. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  3. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  4. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
  5. Quarterly Earnings Report

    A quarterly filing made by public companies to report their performance. Included in earnings reports are items such as net ...
Trading Center