An Independent contractor is basically a self-employed person or brand. Although most of the people working in public jobs such as lawyers and accountants come to mind, every self-employed person can work as an independent contractor.
It is critical that business owners correctly determine whether the individuals providing services are employees or independent contractors. The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done. You are not an independent contractor if you perform services that can be controlled by an employer (what will be done and how it will be done). This applies even if you are given freedom of action. What matters is that the employer has the legal right to control the details of how the services are performed.
The earnings of a person who is working as an independent contractor are subject to Self-Employment Tax.
First of all, you have to ensure you really are an independent contractor. And then you must get a tax registration. Don’t forget, if you are an independent contractor, you are self-employed. The process to become an independent contractor is pretty straightforward. Here’s what you need to do:
You can get a name for your brand or use your own name.
Choose a structure by deciding whether you want to operate as an LLC, LLP, or S-Corp.
Get yourself a self-employed or independent contractor business bank account.
And get the necessary documentation to meet your tax obligations as an independent contractor.
To find out what your US tax obligations are, check the “Independent Contractor Taxes” section.
As a self-employed individual, generally, you are required to file an annual return and pay estimated tax quarterly.
In IRS website it is stated that:
“Self-employed individuals generally must pay self-employment tax (SE tax) as well as income tax. SE tax is a Social Security and Medicare tax primarily for individuals who work for themselves. It is similar to the Social Security and Medicare taxes withheld from the pay of most wage earners. In general, anytime the wording “self-employment tax” is used, it only refers to Social Security and Medicare taxes and not any other tax (like income tax).”
You must pay SE tax and file Schedule SE (Form 1040 or 1040-SR) if either of the following applies.
1- Your net earnings from self-employment (excluding church employee income) were $400 or more.
2- You had church employee income of $108.28 or more
SE tax rate. The SE tax rate on net earnings is 15.3% (12.4% social security tax plus 2.9% Medicare tax).
Maximum earnings subject to SE tax. Only the first $132,900 of your combined wages, tips, and net earnings in 2019 is subject to any combination of the 12.4% social security part of SE tax, social security tax, or the Tier 1 part of the railroad retirement tax. All your combined wages, tips, and net earnings in 2019 are subject to any combination of the 2.9% Medicare part of SE tax, Medicare tax, or Medicare part of the railroad retirement tax. If wages and tips you receive as an employee are subject to either social security or the Tier 1 part of the railroad retirement tax, or both, and total at least $132,900, do not pay the 12.4% social security part of the SE tax on any of your net earnings. However, you must pay the 2.9% Medicare part of the SE tax on all your net earnings.
You may be able to deduct the amount you paid for health insurance for yourself, your spouse, and your dependents.
Student Loan Interest Deduction
Please feel free to download the Independent Contractor Invoice Template here.
Don’t forget. An invoice must contain;
Complete contact information for both client and Independent Contractor
Dates and details for work rendered
Total payment due and the due date
Terms for payment and penalties for late balances
Social security benefits are available to self-employed persons just as they are to wage earners. Your payments of SE tax contribute to your coverage under the social security system. Social security coverage provides you with retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits.
Best 10 independent contractor apps for 2020;