If you’re freelancing, consulting, or juggling 1099 gigs, you’ve probably asked yourself: Is an independent contractor self-employed? Understanding what it means—legally and financially—can help you avoid missteps that cost time or money later.
For many new solopreneurs, the difference isn’t obvious. Still, getting it right has real consequences for taxes, compliance, and how you structure your business.
If you’re building a life beyond W-2 work, knowing how you’re classified—and what that means for your responsibilities—gives you more control. From estimated taxes to liability protections, every decision gets easier when you start with the right foundation.
Short answer: Yes
The IRS considers you self-employed if you’re working for yourself and not on a company’s payroll. That includes independent contractors, gig workers, consultants, and freelancers. You’re responsible for managing your income, tracking expenses, and paying self-employment taxes. Independent contractors are a subset of self-employment.
The government considers you self-employed if:
- You invoice clients directly/receive payment for products directly
- You control your hours and methods
- You aren’t receiving W-2 wages from the work you do
- You’re paid $600 or more and receive a 1099
Even without registering a business, you’re operating as a business of one. Most people in this position default to sole proprietors, unless they’ve formed an LLC or elected S corp status.
Your work structure may look informal, but legally, you’re running a business.
What’s the legal difference between the terms?
“Independent contractor” and “self-employed” are closely related, but they describe different aspects of your solo career. Understanding both is essential for compliance, taxes, and how you present yourself to clients.
- “Independent contractor” describes your working relationship. You provide services under contract, control how and when you work, and aren’t managed like an employee.
- “Self-employed” refers to your tax and business status. You’re running a business, even if it’s a business of one. You report income on your own, pay self-employment tax, and manage your expenses.
If you haven’t formed an LLC or elected S corp status, you’re likely operating as a sole proprietor by default. According to the IRS, if you control how and when you work, you’re self-employed.
Why this distinction matters:
- It affects how your income is reported and taxed
- It determines whether your clients issue a 1099-NEC
- It shapes your legal responsibilities as a business owner
Knowing the difference gives you more control over your business strategy and ensures you can confidently meet your obligations.
Sole proprietor
A sole proprietor runs a business without a formal entity like an LLC or corporation. This structure is the default for anyone selling goods or services directly to customers under their name. You don’t receive 1099 forms—you’re responsible for tracking all income and expenses.
Common examples include:
- Therapists billing clients directly
- Artists or makers selling on Etsy
- Independent realtors or app developers
You’re still self-employed and must report business income on your taxes, typically using Schedule C. This setup offers simplicity, but no personal liability protection.
Independent contractor/freelancer
Independent contractors work with clients under contract, providing services like writing, design, consulting, or engineering. You control how and when the work gets done, but you’re not on payroll. Clients don’t withhold taxes or provide benefits.
If you earn $600 or more from a client, they will send you a 1099-NEC. You must track that income, report it on your taxes, and manage your deductions and quarterly payments.
Freelancers are self-employed. Whether you’re a fractional CXO, freelance software engineer, or marketing consultant, you’re running a business—even if it’s just you.
Tax responsibilities of independent contractors
If you’re self-employed, you’re responsible for managing your taxes—no employer is withholding them for you. That means understanding your obligations and building systems to stay compliant.
Independent contractors must:
- Pay self-employment tax, which covers Social Security and Medicare contributions normally split with an employer.
- File Schedule C to report business income and expenses, and Schedule SE to calculate self-employment tax.
- Make quarterly estimated tax payments if you expect to owe $1,000 or more in taxes for the year.
The IRS gig economy tax center outlines these requirements for freelancers and independent workers.
Besolo’s tax platform makes this process easier. You can automate quarterly estimates, organize deductions, and keep your records clean for tax season—without scrambling at the last minute.
Pros and cons of independent contractor status
Independent contracting offers unmatched flexibility, but it also comes with added complexity. For solopreneurs building a business of one, weighing the trade-offs can help you decide how to grow strategically.
Pros
- You control your schedule and workload. You choose which projects to take, when to work, and how to deliver results.
- You can earn more for specialized skills. Contractors often charge higher rates than employees in the same role.
- You can work across clients and industries. Diversifying income sources helps you avoid relying on one employer.
- You can evolve your structure over time. Many start as sole proprietors, then form an LLC or S corp as income grows.
Cons
- You’re responsible for getting benefits. That includes health insurance, retirement savings, and time off.
- You manage your taxes and compliance. You’ll track income, pay quarterly taxes, and maintain records.
- You face legal and financial risk without a formal structure. Sole proprietors have no liability protection. An LLC adds a layer of separation between you and your business.
- Clients may misclassify you. If someone treats you like an employee without the benefits, it can lead to IRS or labor issues.
If you’re planning to grow or are already earning consistently, formalizing your business structure can help you manage risk, improve your tax position, and signal professionalism to clients.
Build your business of one with clarity and support
Independent contractors are self-employed, but treating that work like a business makes all the difference. Classification affects everything from tax strategy to how clients engage with you. The more clarity you have, the more control you gain over your growth, earnings, and day-to-day operations.
Besolo gives you the back-office support to make it easier. With Self-Employment OS, you can manage tax filings, organize income and expenses, and stay compliant—without juggling disconnected tools. If you’re starting as a sole proprietor or evaluating options like LLCs vs. S corps, Besolo helps you choose and maintain the proper structure for your goals.
Explore more insights from our blog to see how Besolo simplifies the back end—so you can focus on doing great work, growing your business, and getting paid on your terms.
