In the world of working adults, if you do your own thing, you’re probably a freelancer. If you prefer a more formal-sounding label, you might call yourself an independent contractor. But as the gig economy grows, so too does the number of labels for working Americans who’ve decided to be their own boss.
Call yourself what you will, but you and the 1099er next to you, and the side-hustler next to him, stand under the same umbrella. You’re all self-employed.
What it means to be self-employed
You’re self-employed if any of the following is true:
you conduct business as a sole proprietor or an independent contractor, or
you’re in a partnership that performs a trade or conducts business, or
you’re in business for yourself (such as a part-time business)
Independent contractors and freelancers
If you’re an independent contractor or freelancer, you might sign a contract with the person or business requesting your services or expertise. This contract will probably detail the scope of the work to be performed and the payment that will follow.
You’re an independent contractor or freelancer if the following is true:
you own a business or you provide a service (your specialty) to other businesses as determined by a contract or verbal agreement
you’re not considered an employee
you receive no benefits
the company for whom you provide a service doesn’t withhold taxes from your pay
As an independent contractor or freelancer, your work might be sporadic because it’s project-based. It comes in waves. In between work, you might encounter a dry spell, where no work is available (for example, if your work is seasonal). This is what sets you apart from, say, a permanent employee who has a designated work location, receives regular paychecks, has his or her taxes withheld, and gets benefits and sick time.
Bottom line:If you’re an independent contractor or freelancer, you’re self-employed.
Self-employed in a gig economy
Because freelance or contract work is on-demand or as-needed, your assignment might last 2 weeks or 18 months. The number of hours per day might be set, or they could vary. The appeal is being your own boss—that is, choosing the projects to work on, the people with whom you work, and oftentimes, negotiating your own schedule.
Some examples of workers who opt to go solo are writers, editors, website/graphic designers, construction workers, photographers, rideshare drivers, realtors, and musicians—even accountants, attorneys, and doctors. The list continues to grow.
Why does it matter?
Your work status—whether you’re a permanent employee or self-employed—impacts the way you do your taxes. For example, a freelancer will receive a 1099 instead of a W-2 at the end of January. A freelancer will pay his or her own income tax and self-employment tax since none of these amounts are withheld from paychecks throughout the year.
As the gig economy grows, and the workforce transforms, reporting your income accurately is more important than ever before. Choose Self-Employed at TaxSlayer, where accuracy is guaranteed.