CashoutGlossary / Independent contractor
Independent contractor
A self-employed worker whose client controls only the result of the work, not how it's done, so no tax is withheld and you owe self-employment tax.
An independent contractor is a self-employed worker. The IRS rule: you're a contractor if the business paying you has the right to control or direct only the result of the work, not what will be done and how it will be done. Delivery and rideshare drivers, booth-renting stylists and freelance event bartenders are often paid this way.
Being a contractor changes your taxes. Nothing is withheld from your pay. You report the income on Schedule C, deduct business costs like mileage, and pay self-employment tax of 15.3 percent on 92.35 percent of your net profit once net earnings reach $400. Many contractors also need to make quarterly estimated payments. For 2026, a business that pays you $2,000 or more for services sends you a Form 1099-NEC, but you owe tax on the income either way.
The label on your paperwork doesn't settle your status. The IRS weighs behavioral control, financial control and the type of relationship. Under the Fair Labor Standards Act, the Department of Labor asks whether you are economically dependent on the business or in business for yourself, and it says a worker who receives a 1099 is not necessarily an independent contractor. If you think you're really an employee, see misclassification.
The common mistake is spending the whole payout. Set money aside from every deposit for income tax and self-employment tax. Cashout's self-employment tax estimate is on Android only.
Related terms
Form 1099-NEC · Self-employment tax · Schedule C · Misclassification · Quarterly estimated tax
