Self Employed & Independent Contractors
As an individual conducting your own business, you may want some guidance along the way. For example, what taxes do you need to pay? To make sure you have the basics covered, we've provided this list of helpful resources.
Starting a Business
- Learn essential steps you must take to legally operate a small business.
- Get tips, advice and rules about buying franchises and how to avoid scams.
- Understand opportunities for assistance. States pay a self-employed allowance, instead of regular unemployment insurance benefits, to help unemployed workers while they are establishing businesses and becoming self-employed. Participants receive weekly allowances while they are getting their businesses off the ground.
Financing a Business
Federal and state government agencies do not provide grants to self-employed individuals for starting a business. However, there are a number of low-interest loan programs that help individuals obtain startup financing. Visit the Loans and Grants Search Tool to get a full list of grant, loan and venture capital programs for which you might qualify.
Tax Information for the Self-Employed
- Understand the Employer Identification Number (EIN), also known as a federal tax identification number, that is used to identify a business entity.
- Get a broad range of state and local tax information, including resources for specific industries, professions, self-employed entrepreneurs, employers and small businesses.
- Participate in a series of self-directed workshops on a variety of topics for small business owners, hosted by the Small Business/Self-Employed online classroom.
- View information on the Self-Employment Tax, a Social Security and Medicare tax for individuals who work for themselves.
- Obtain a listing of tax forms that a sole proprietor needs to file, along with additional resources.
Visit the State and Local Tax page to learn more about your state’s taxes required for self-employed individuals.
- Learn how to report your earnings.
- Access the Social Security benefit claim form for self-employed individuals.
Government Contracting Opportunities
The government provides many opportunities for small businesses. The following guide provides information on programs that help small businesses successfully compete for federal contracting opportunities.
Commonly known as consultants, freelancers and self-employed, independent contractors are individuals who are hired to do a particular job, receiving payment only for the work being done. Independent contractors are business owners, and are not their clients' employees. They do not receive employee benefits or the same legal protections as employees, and are often responsible for their own expenses. If you think you want to be an independent contractor, explore the resources below.
Start Your Business
Like all other small business owners, you will need to follow some essential steps to starting your business. This includes getting the proper tax registrations, business and occupational licenses and permits from federal, state and local governments in order to operate legally.
As an independent contractor, you will also want to create a standard agreement for your services. The U.S. Chamber of Commerce provides a sample agreement. You can find a number of other sample agreements on the Internet, but it is best to consult an attorney to draft one specifically for your business, since your agreement will be a legal document between you and your client.
Find Business Opportunities
Large and small businesses, organizations and government agencies hire independent contractors for a wide variety of jobs, from professionals such as accountants and engineers to trades like construction and trucking.
These resources will help you connect with potential clients and locate opportunities:
- Find out how you can advertise your professional services and locate clients using this directory of websites.
- Learn how to bid on contracts, including professional and trade services, with federal and state government agencies.
Operate Your Business
As an independent contractor you are responsible for paying your own taxes, Social Security, unemployment taxes, workers' compensation, health insurance, and other benefits. In addition, you and your client should understand the differences between an independent contractor and an employee, as well as your legal rights and responsibilities.
Pay Your Taxes
Independent contractors must pay federal taxes on income and FICA; however, your client will not withhold taxes for you. As a business owner you will need to pay estimated taxes throughout the year instead of once a year on April 15.
The following IRS resources will help you understand how to pay federal taxes as an independent contractor:
- Get all the information you need on federal tax at this one-stop resource for independent contractors.
- Obtain a list of IRS forms frequently used by independent contractors.
Depending on the location of your business, you may be required to file state and local income and business taxes. Visit our State and Local Tax page for more information.
Are You an Employee or Independent Contractor?
Because you or your client calls you an independent contractor doesn't mean that you are one. There are legal requirements that classify workers into employees and independent contractors. Before starting your first job (or even the next one), it's important to become familiar with these distinctions.
As an independent contractor you do not have the same legal rights and protections as employees:
- You are paid only for the work performed. Your clients are not required to pay employee benefits under the Fair Labor Standards Act (FLSA), including overtime and minimum wage
- You are not covered under your clients' workers' compensation benefits
- You are not entitled to receive your clients' employee benefits
- You are not covered under Equal Employment Opportunity laws as they apply to your client's relationship with its employees
- Your taxes are not withheld and paid by your client, including income, FICA and unemployment
If your client misclassifies you as an employee, they may be required to pay back taxes, and provide employee benefits, workers' compensation, unemployment, and more.
Just as your client should be very careful to distinguish between employees and contractors, so should you. If you feel you are being treated as an employee, complete Form SS-8 to ask the IRS to make a determination. If the IRS determines you are an employee, you should immediately contact an attorney. You may be able to file a lawsuit against the employer under FLSA, state unemployment or workers' compensation laws, and others. For more information, visit Independent Contractor (Self-Employed) or Employee?