Virginia Contract with Independent Contractor to Work as a Consultant
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FAQ
The key difference between a 1099 and a W-2 revolves around taxation and employment status. A 1099 form is issued to independent contractors, indicating they are not considered employees. In contrast, W-2 forms apply to employees, with taxes withheld by the employer. Understanding these distinctions is crucial when creating a Virginia Contract with Independent Contractor to Work as a Consultant, as it affects how you manage payments and obligations.
Pay self-employment taxAs an independent consultant you are considered self-employed, so if you earn more than $400 for the year, the IRS expects you to pay your own tax. The self-employment tax rate is 15.3% of your net earnings.
Freelancers and consultants are known as "independent contractors" in legal terms. An independent contractor (IC) is a person who contracts to perform services for others without having the legal status of an employee.
Contractor vs. The big difference is that contractors actually perform work to complete a task, and consultants create solutions to guide how a company can conduct its workflow.
When you do consulting work in the U.S., you can be paid two different ways: as an employee on a W-2 tax basis, or on a 1099 tax basis as an independent contractor. As a consultant, being paid on a 1099 tax basis is a huge plus for two key reasons: You save more for retirement.
If you're working on projects valued in excess of $1,000 in Virginia, you need a contracting license. As mentioned, the agency that oversees Virginia contractor licensing is the Department of Professional and Occupational Regulation.
At that point the Consultant may be said to become a Contractor. The terms have also become blurred as industry has incorporated them into employee job titles. Generally, a Consultant is a self-employed independent businessperson who has a special field of expertise or skill.
In general, the difference is that the consultant's role is to evaluate a client's needs and provide expert advice and opinions on what needs to be done, while the contractors role is generally to evaluate the client's needs and actually perform the work.
VA Business License Requirements The good news is that Virginia isn't one of those states and doesn't have a statewide business license requirement. However, just like other states, Virginia does have license and/or certification requirements for specific business activities.
There isn't a requirement in Virginia for sole proprietors to acquire a general business license, but depending on the nature of your business you may need other licenses and/or permits to operate in a compliant fashion.