What is an Independent Contractor?

In the simplest of terms, an independent contractor is a worker (an individual or business) that provides services to a company but is not an employee of that company. The working relationship between the parties is governed by a contract, which spells out the terms of the agreement.

Payment is made per unit of work performed as defined in the contract. In the case of telework, payment may be made by the minute, by the hour, by the call or for a successful call result, as in an appointment being set or a sale being made.

Payment for independent contractor services is reported to the IRS (for United States tax reporting purposes) at the end of the tax year on IRS Form 1099.

The decision to accept work as an independent contractor should be made carefully.

Independent Contractors are responsible for their own expenses and withholding tax payments (including personal income tax, social security and Medicare).

In the case of telework expenses may include such items as phone service, internet service, long distance and any necessary insurance coverages such as workman's comp and general liability insurance. Estimated tax payments to the IRS may be required throughout the year.

Before deciding to accept work as an independent contractor it is advisable to consult competent legal and/or tax professionals to ensure a complete understanding of all resulting responsibilities, record-keeping and tax filing requirements.