How to Become an Independent Contractor: The Steps, the EIN and the Taxes

What makes you an independent contractor

The IRS rule is about control. You are an independent contractor if the person you work for has the right to control or direct only the result of the work, and not what will be done and how. If the business has the legal right to control the details, you are an employee, even if you are given freedom in practice and whatever the agreement calls you.

The IRS sorts the evidence into three groups:

• Behavioral: does the company control, or have the right to control, what you do and how you do it?
• Financial: does the company control the business side of the job, such as how you are paid, whether expenses are reimbursed and who provides the tools?
• Type of relationship: is there a written contract, are there employee-type benefits such as a pension or vacation pay, will the work continue, and is it a key part of the business?

No single factor decides it. If neither side is sure, the business or the worker can file Form SS-8 and ask the IRS to make the call; the IRS says a determination can take at least six months.

States can use their own test for state law. California, for example, applies the ABC test: a worker is an employee unless the hiring business shows the worker is free from its control, does work outside its usual course of business, and is customarily engaged in an independently established business of the same kind. Check your state's labor department if you work in a state with its own rule.

The steps to start

1. Decide how you will be set up. Doing nothing makes you a sole proprietor: you and the business are the same taxpayer. Some contractors form an LLC instead; a single-member LLC is taxed the same way by default and gets its own EIN rules (see EIN for a single-member LLC).
2. Pick a business name, and register it if you use one. The SBA says most states require a DBA (a trade, fictitious or assumed name) to be registered when you do business under a name other than your own, with the state, county or city. More in EIN for a DBA.
3. Get your EIN if you want one or need one. It goes on your W-9s, your bank application and, later, any payroll filings. The application names you, the owner, as the responsible party. See EIN for a sole proprietor.
4. Check licenses and permits. The SBA says the requirements depend on your activity and location, and local governments set their own, and that most small businesses need a combination of federal and state licenses and permits.
5. Fill out a W-9 for each client. Every business that pays you will ask for one before the first payment. You can fill one in with our fillable W-9.
6. Open a business bank account. The SBA notes that a DBA and an EIN let you open one. Keeping business money separate makes the year-end records far easier. See business bank account requirements.
7. Set up invoicing and records. The IRS tells contractors to keep records of all income and receipts for expenses through the year. Expenses lower the tax you owe.
8. Start estimated tax payments. No one withholds tax for you, so you pay as you go (below).

The W-9: SSN or EIN?

Form W-9 is how a client gets your name and taxpayer identification number for the 1099 it files. As a sole proprietor you put your own name on line 1 and any business or DBA name on line 2. The form's instructions say a sole proprietor with an EIN may enter either the SSN or the EIN; the IRS's name chart adds that it encourages the SSN. Whichever you give, it must match the name on line 1, or the client may have to hold back 24% of each payment as backup withholding. The client keeps your W-9 on file for four years.

Some contractors who send W-9s to many clients prefer a business number on them. If a payer's system rejects your name and number, the cause is usually a mismatch, covered in TIN matching. The LLC version of the form is in W-9 for an LLC.

When an EIN is required, not optional

The IRS requires an EIN if you have employees, pay employment or excise taxes, or withhold tax on non-wage income paid to a nonresident alien. It also lists partnerships, corporations and LLCs among the entities that need one. If you do not need one for federal tax, the IRS says you can still request one for banking or state tax purposes. The EIN does not replace your SSN on your own return: you still need an SSN or ITIN to pay self-employment tax.

The forms, who fills them out, and when

Taxes as an independent contractor

Income tax and the 1099-NEC

Clients report what they pay you on Form 1099-NEC. For tax years beginning after 2025 the reporting line is $2,000 of nonemployee compensation, and the IRS says it may be adjusted for inflation from 2027. The line only decides whether the client files a form. You report all of your income on your return, including payments no 1099 covers, and figure the profit on Schedule C.

Self-employment tax

Self-employment tax is the Social Security and Medicare tax an employer would otherwise split with you: 15.3% in total, 12.4% for Social Security and 2.9% for Medicare. For 2026 the Social Security part applies to the first $184,500 of combined wages and net earnings. You owe it, and file Schedule SE, once net earnings from self-employment reach $400, and you can deduct the employer-equivalent half when figuring adjusted gross income. Our self-employment tax calculator does the arithmetic.

Quarterly estimated tax

People in business for themselves generally make estimated payments if they expect to owe $1,000 or more when they file. Form 1040-ES has the worksheet. The payments cover income tax and self-employment tax together and are due:

• April 15, for January 1 to March 31
• June 15, for April 1 to May 31
• September 15, for June 1 to August 31
• January 15, for September 1 to December 31

A due date on a weekend or legal holiday moves to the next business day. Paying too little, or late, can bring a penalty even if you end up with a refund. Use the estimated tax calculator for a first figure. If you also have a job, the IRS says you can instead have more withheld from your paycheck with a new Form W-4.

If you hire help later

Once you have employees you need an EIN, and you take on payroll filings: Form 941 for withholding and Social Security and Medicare taxes, Form 940 for federal unemployment tax, and W-2s for each employee. Paying other contractors is lighter: collect their W-9 and file a 1099-NEC when you pay one of them $2,000 or more in a year.

Quick answers