What Is an Independent Contractor?

• An independent contractor is anybody who relies on his own business for his income. The independent contractor rarely only works for one company, and most contractors work for numerous clients in the same field of work. An independent contractor can be called many things -- such as a freelancer or a consultant -- but all fall under the same tax guidelines.
  
  

Paying Taxes

• As an independent contractor, you do not have an employer to take the appropriate amount of taxes out of your paycheck before you receive it. As such, you will need to keep track of your own income, as well as how much you owe to taxes each year. An independent contractor musts keep in mind that not only will she need to cover income taxes, she will also need to provide funds for medicare and social security.
  
  

Quarterly Payments

• Since independent contractors do not have their taxes sent in at least monthly, they are required to estimate their income for the year and send in tax payments every three months. If the contractor fails to do so, the IRS can charge a penalty fee of 6 to 8 percent on what they would have received before the April 15 deadline. You are required to pay quarterly taxes if you expect to have to pay more than $1,000 worth of federal taxes.
  
  

Self Employment Tax

• When you work for an employer, the company usually pays an additional employment tax on your behalf. When you work for yourself, however, you are required to pay additional tax. The self employment tax rate is and additional 15.3 percent of your income on top of your regular income tax. This tax consists of 2.9 percent for medicare and 12.4 percent for social security.
  
  

Deductions

• Independent contractors have additional deductions available to them to help relieve some of the tax burden they may encounter. The home office tax deduction is the most lucrative of these deductions, and allows you to claim some of your expenses, in some cases even part of your utility bills, rent or mortgage, as a deduction on your taxes.