Working as an independent contractor rather than an employee is attractive for many reasons. There are a variety of benefits, but be aware of the risks before you decide.
Benefits of Working as an Independent Contractor
Work for yourself.
As an independent contractor, you enjoy the freedom of being your own boss. You can choose which jobs you take, set your rates, and decide when you work rather than following an employer's schedule or directions for every task.
Earn more.
Independent contractors can sometimes make more money than employees because clients typically pay a higher project fee instead of covering employee benefits and payroll taxes.
Pay lower income taxes (sometimes).
Independent contractors estimate their tax payments and pay quarterly rather than having federal and state taxes withheld from each paycheck. This gives you control over timing, though it does not always mean a smaller overall tax bill.
Enjoy more tax deductions.
You can deduct reasonable, ordinary business expenses on your tax return. Common deductible categories include:
- Office
- Travel
- Insurance
- Equipment
- Mileage
- Uniforms
- Trade conferences and magazines
- Entertainment and meals
Risks of Working as an Independent Contractor
Reduced job security.
Independent contractors are responsible for finding and keeping work. If clients slow down or stop using your services, you do not receive a guaranteed paycheck.
No employer-sponsored benefits.
You typically do not receive health insurance, paid time off, or employer retirement contributions, so you must arrange and pay for these yourself. For some specialized activities, consider policy options such as Independent Horse Shows and Events Insurance or industry-specific coverage like Independent Power Plants (IPP) Insurance.
No labor law protections.
Many federal and state workplace protections apply only to employees, so independent contractors may lack the same legal safeguards against certain workplace practices.
Risk of not getting paid.
If a client refuses to pay, your options are more limited than an employee’s and may require collections or legal action to resolve.
Provide your own equipment.
Independent contractors usually must buy or rent the tools and equipment needed for their work and are responsible for storage and maintenance costs.
When deciding whether to work as an independent contractor, weigh the flexibility and potential for higher earnings against the loss of employer benefits and protections.
Frequently Asked Questions
How do taxes work for independent contractors?
Contractors report income on their tax returns and usually pay estimated taxes quarterly; they can also deduct eligible business expenses. Consult a tax professional for personalized guidance.
Can I get health insurance if I’m an independent contractor?
Yes; contractors can purchase individual or family plans through the marketplace, private insurers, or professional associations, but they must pay the premiums themselves.
What business expenses are typically deductible?
Common deductions include office costs, equipment, travel, mileage, insurance, and industry publications, provided the expenses are ordinary and necessary for your trade.
How can I protect myself from a client who won’t pay?
Use written contracts, require deposits, invoice promptly, and consider late fees or collections services; legal remedies are available but can be time-consuming and costly.