Minimum Requirements for Working as an Independent Contractor

If you're working for yourself and earning money, you may be considered an independent contractor. Many people start small side projects that grow into legitimate businesses without realizing they need to meet certain requirements.

Even if you work just a few hours a week, there are basic rules you need to follow. Here are the four main things you should do when starting out as an independent contractor:
 

1. Confirm You're an Independent Contractor (Not an Employee)

First, make sure you really qualify as an independent contractor. You're an independent contractor if you run your own business and maintain control over how your work is completed.

On the other hand, you're an employee if someone else has control over your work, including how, when, and where you do it.

Employees don't need to follow the steps in this guide, but if you want to operate as an independent contractor, these actions will help secure your status and prevent confusion.
 

How to Tell the Difference:

Government agencies like the IRS use a "control test" to decide if you're self-employed. If a company or client oversees the details of how you work and can direct your tasks, you’re likely an employee.

If you control your own schedule, decide how your work is done, and deliver the final results independently, you're most likely an independent contractor.
 

Signs You're an Independent Contractor:

 

• You work with multiple clients, not just one.
• You manage your own business expenses (like office supplies or equipment).
• You set your own hours and market your services.
• You don’t receive employee benefits like health insurance.
• You pay your own Social Security and Medicare taxes.
• You use independent contractor agreements with clients.

 

2. Pick a Business Name

Choosing a business name can make you look more professional when sending invoices or creating business cards.

You can use your own name, but if you decide on a different business name, you might need to register it with your local government.
 

What Is a Fictitious Business Name?

A "fictitious business name," also known as a DBA (Doing Business As), is required if your business name doesn't include your full legal name. This helps customers identify the owner of the business and legally protects your name.

For example:
 

• If “Madeline Quinn” runs a consulting business called "Madeline Consulting," she’ll need to register that name because it doesn’t include her full legal name.
• However, names like "Aidan Ray Editorial Services" or "Mike Russell Architectural Services" don’t need registration because they include full names.

 

How to Register Your Business Name:

Contact your local county clerk to file your fictitious name registration. Rules vary by state, but many require registration at the county level (while others, like Florida, handle this at the state level).

You’ll also need registration to open a bank account under your business name or enforce contracts.
 

3. Get Necessary Licenses and Certificates

Tax Registration Certificate:

Most cities or counties require businesses to register with their local tax office and get a tax registration certificate (sometimes called a business license). This essentially shows you’re paying local taxes to operate in that area.

Even if you work from home, you may need to register in the city where you live, regardless of where your clients are located. Avoid skipping this step, as penalties for not registering can be expensive, while the cost for a certificate is usually small.

Vocational Licenses:

Certain professions require specific licenses. For example, barbers, massage therapists, real estate agents, and auto mechanics may need professional vocational licenses.

Check with your trade association or local/state government to see if a license applies to your business.
 

4. Pay Estimated Taxes

Unlike regular employees who have taxes automatically withheld from their paychecks, independent contractors are responsible for managing their own taxes.

This includes income taxes and self-employment taxes (which cover Social Security and Medicare contributions).
 

Do You Need to Pay Taxes?

If you earn over $400 in a year through your business, you must report the income to the IRS. Many independent contractors also need to pay their taxes in quarterly installments, called “estimated taxes,” throughout the year.
 

How to Avoid Penalties:

If you have another regular job, you can ask your employer to withhold more tax from your paycheck. This extra withholding can cover the taxes you owe from freelancing or side gigs.

However, skipping taxes entirely isn’t recommended. If a client pays you over $600, they’ll report it to the IRS, and you’ll need to account for that income on your tax return.

Thankfully, independent contractors can often lower their tax bills by deducting expenses like office supplies, travel, or advertising costs. In some cases, business-related losses can even reduce taxes owed from other sources of income.
 

Conclusion

Becoming an independent contractor involves more than just earning money. Setting up your business properly will protect you legally, help prevent penalties, and establish you as a professional in your field.

If you follow the tips above—confirming your status, registering your name, obtaining necessary licenses, and managing taxes—you’ll be off to a great start!

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