Who is responsible for paying taxes when working as an independent contractor?

• A. The employer
• B. The independent contractor
• C. The government
• D. The employee benefits office

Answer: (B)

When you work as an independent contractor, you’re treated as self-employed, so there’s no employer withholding taxes from your pay. You’re responsible for reporting all your income and paying both income tax and the self-employment tax (which covers Social Security and Medicare) to the tax authority. This often means making quarterly estimated tax payments in addition to filing an annual tax return. You can reduce taxable profit by deducting ordinary business expenses on your tax return. Since there’s no employer handling tax withholding, and the government collects the taxes, the person performing the work—the independent contractor—is responsible for paying taxes.