There isn’t a big difference between the two in the eyes of the IRS—but in everyday language, these titles can have different meanings.
What’s the Difference Between a Freelancer and an Independent Contractor?
If you aren’t an employee, you’re likely self-employed. You may be a sole proprietor of your own graphic design business, an independent contractor for a fintech startup, a gig worker driving for a rideshare company, or the owner of a part-time pet-sitting business. Self-employed people file an annual tax return using a Schedule C, and pay estimated quarterly taxes that include income, Social Security, and Medicare taxes. The IRS applies various rules to determine if you’re an employee or an independent contractor. You’re considered an independent contractor by the government if you are:
Deciding when and how you’ll perform work and what work you’ll doRunning your own business and using your materials, tools, and equipmentWorking on temporary projects, and you’re paid after the project is completeWork with multiple clients overall
If the IRS determines that a business classified an employee as an independent contractor, the business could be responsible for that worker’s employment taxes.
Clients
While the IRS may not differentiate between a freelancer and an independent contractor, the typical person may use these terms differently. Someone considered a freelancer often has multiple clients at any given time. Independent contractors may work with one client for an extended period, but could work with several clients consecutively over a year. At the end of the tax year, these clients will send a 1099 form to the freelancers and independent contractors if the business makes payments of $600 or more to each one. Some independent contractors work for staffing businesses, vendors, or creative agencies that act as matchmakers between a company and the talent. These positions last for a contractually agreed-upon amount of time. In this situation, the independent contractor becomes an employee of the staffing business, will receive a W2, and may be eligible for traditional workplace benefits such as retirement, health insurance, and sick leave. The staffing business will deduct your taxes and other required payments from your paycheck.
Projects
For freelancers, many projects are short term or minor, and it’s less common that one client or project takes up a 40-hour workweek. The freelancer might perform the work in an on-site workplace, but typically, the freelancer will have a home office or other office location. Pay is often per project, but could also be by hour or piece. Independent contractors typically work on larger or longer-term projects. Some independent contractors work on “contract jobs” or “long-term contracts.” These temporary contract jobs complete a specific project within a set time frame, for a set amount of money. A “contract to hire” job starts out like a contract job for the independent contractor—but can become full-time employment when the contract is up. For independent contractors, work may take place at home or on-site. Pay is often hourly.
Example Careers
Examples of freelancers include editors, photographers, writers, designers, and other creative fields. Freelance jobs can also include transcription, data entry, and even online tutoring. Software developers, cloud engineers, and security professionals who work on contracts can be examples of independent contractors. Independent contractors also might be employed in construction, marketing, sales, project management, and business consulting. Technical writers often work on a short-term or long-term contract basis.
Self-Employment Responsibilities
Both freelancers and independent contractors are responsible for:
Budgeting for federal and state taxes Buying freelance or self-employed health insurance Retirement savings, such as a self-employed 401(k) plan Administrative duties, including obtaining and maintaining a business license, bookkeeping, marketing, getting business insurance, and managing any investments
Which Is Right for Me?
If you’re hoping to work for yourself, you might consider which route appeals more. Are you interested in the stability of longer-term contracts and projects with fewer clients, which you may get as an independent contractor? Or the variety and novelty of shorter, more numerous projects with more clients, as is typical of a freelancer? If you want even more consistency, consider long-term contract or contract-to-hire positions as an independent contractor—but ensure you understand your tax status and if it will change over time.
The Bottom Line
The IRS doesn’t differentiate between a freelancer or contractor. In the everyday career world, these titles may describe two different roles and types of self-employment. Freelancers may have more variety but less stability. Workloads, clients, and projects could change monthly. Independent contractors might work with fewer clients for more extended contracts. Just remember your responsibilities as a self-employed person regarding taxes, administrative duties, and health insurance—and don’t forget to save for retirement.
