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Independent Contractor
Definition
An independent contractor is a self-employed individual who provides services to clients under a contract but is not considered an employee for tax or legal purposes.
Explanation
Independent contractors control how and when they work, use their own tools, and can work for multiple clients. They receive a 1099 tax form rather than a W-2. Unlike employees, they must pay both the employer and employee portions of Social Security and Medicare taxes (self-employment tax).
Proper classification of workers as employees vs. independent contractors is important for legal and tax compliance.
Example
A freelance consultant earning $100,000 as an independent contractor pays about $14,100 in self-employment tax in addition to income tax.