From ArticleWorld

A self-employed person works for himself or herself.



A person who is self employed is not employed by any other person or business. They use their specific skills to draw income by drawing from a trade or business. Technically, the individual and the business are one and the same.


Self-employment is less stable than working for a large business. Since the individual operates as the business, this leaves him or her susceptible to lawsuit and leaves him or her liable for all debts related to the business. To protect one’s interests it is often advisable to incorporate the business (which protects one’s personal assets from legal action against the business). If a client goes bankrupt, the actual employees will have first claim to the company’s assets, then the IRS and then external creditors (including the contractor).

Self-employed workers don’t have access to a 401(k) plan. Rather most set up a Self Employment Plan IRA, which allows them to contribute up to 20 percent of their income (or $40,000 USD annually) per year.


Self-employment allows a person to make a high hourly wage and often allows for more flexibility than traditional employment. An SEP IRA allows for more significant contributions than a traditional 401(k) plan.

If a person is successful in this endeavor, they may find that they cannot keep up with the needs of clients and my hire employees forming a small business.

Tax implications

Since self-employed workers are paid directly by clients, income tax will be due to the government, after receiving the income. In the United States, self-employed workers usually pay taxes quarterly and at the end of each year if a return deems it necessary. They are expected to pay both the employee and employer portions of FICA at 12.4 percent and 2.9 percent for Medicare.

Workers can also take more deductions than a typical employee, including mileage, computer equipment, cell phones and more.