An independent contractor is someone who is self-employed and contracts himself out to another’s business. As an independent contractor, generally you are required to file an annual income tax return and pay income tax liability. Additionally, you must also pay self-employment taxes which cover Social Security and Medicare contributions, unless you are employed elsewhere while also operating as an independent contractor.
Because income tax, Social Security and Medicare contributions are not withheld from the paycheck of an independent contractor, you have specific payment and filing requirements. For all tax liability, you must pay estimated tax quarterly rather than wait until your annual tax return is due. If you fail to pay your estimated tax liability quarterly, the IRS will impose a fine equal to a percentage for each day your estimated taxes went unpaid.