1099 contracts are legal agreements between companies and independent contractors whose earnings are reported to the IRS on a 1099 tax form at the end of each year. The contractor must earn an income of $600 or more for that year.

What Is an Independent Contractor?

Independent contractors are workers who are technically self-employed. These types of workers are hired by companies for certain services but are not legally employees. 

Unlike employees, independent contractors are responsible for their own self-employment taxes (Social Security and Medicare). Companies will decide which of their workers are classified as employees and which are independent contractors. Technically independent contractors are classified as their own business entity, and they don't receive any of the benefits employees do, like healthcare or vacation time. 

Most independent contractors also work jobs where they are treated as employees, sometimes in order to get insurance coverage. It can be hard to tell how many independent contractors there are in the United States because many file both W-2 and 1099 forms, so they don't identify solely as independent contractors. 

A large percentage of Americans work as independent contractors full time, putting in over 15 hours weekly, while many work part-time and work a second job as traditional employees. 

Some of the most popular types of jobs for independent contractors include:

  • Accountants
  • Real estate agents
  • Truck drivers
  • Creative professionals
  • IT professionals

Other professionals who are self-employed and fall under the independent contractor umbrella according to the IRS include:

  • Lawyers
  • Doctors
  • Dentists
  • Veterinarians
  • Others who run their own practices

Independent contractors are categorized by the IRS with any workers providing their services to the public, like freelance writers, photographers, auctioneers, as well as contractors and subcontractors. 

What Is a Freelancer?

The term "freelancer" is very general and applies to about one-third of American workers. Many Americans will work as freelancers to occasionally take on projects outside of their regular jobs, maybe once a year. Freelancers and independent contractors are basically the same. Both types of workers can decide their own schedule and clients, and they both are responsible for their own insurance coverage and tax withholdings. 

The following jobs are commonly done by freelance workers:

  • Web content writing
  • Graphic design
  • Business consulting

What Is a Self-Employed Worker?

Anyone who acts as their own boss is a self-employed worker and is also known as an independent contractor. FICA and FUTA contributions need to be covered through quarterly tax payments by self-employed workers. 

Traditional employees, also called W-2 workers, only pay half of their employment taxes, while their employers pay the other half, but self-employed workers are responsible for the full amount. Different resources like the Bureau of Labor Statistics and the IRS have varying definitions of what it means for a person to be self-employed.

However, they all agree that those who are self-employed usually fall into one of the following categories:

  • Independent contractors
  • Sole proprietors
  • Individuals working in a partnership

Data from surveys done by resources like the Bureau of Labor Statistics (BLS) show that almost 15 million American workers are classified as self-employed, which is almost 10 percent of the American business world. Other surveys show higher numbers for people classified as independent contractors and freelancers. Some of these surveys are outdated, as they gather their information by asking workers how they would classify their work situation.

What Is an Incorporated Self-Employed Worker?

Workers who identify as incorporated self-employed are independent contractors who have chosen to create a corporate identity for themselves by forming an LLC, S Corp, or C Corp. More and more independent contractors are deciding to create business entities for their work. Self-employed workers who are unincorporated can still work, but they aren't legally viewed as business entities. 

What Is an On-Demand Worker?

On-demand workers provide services as needed, or might be on-call at any time. 

Some examples of on-demand workers are:

  • Uber
  • Lyft
  • Postmates
  • Upwork
  • MTurk (Amazon)

Most of the time an on-demand worker will have a 1099 contract, but some companies do hire on-demand workers as traditional W-2 employees. 

1099 contracts are necessary for any type of self-employed, freelance, on-demand, or independent contractor workers. 

If you need help with 1099 contracts, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.