A contractor agreement—also known as an independent contractor agreement, 1099 agreement, or freelance contract—is a contract between a client willing to pay for the performance of services by a contractor (person, sole-proprietor, or single-member LLC) who is willing to perform the services. Under the Internal Revenue Code (26 U.S.C. §3509), an independent contractor is not an employee, and the client hiring an independent contractor is not responsible for tax withholdings and payment of FICA taxes. A contractor agreement should be in writing, and will usually address issues such as the (1) scope of the work (description of the services); (2) terms and length of the project or service; (3) payment details, including fee deposits, hourly rate, and billing procedure; and (4) confidentiality, non-solicitation, and dispute resolution clauses.
A contractor may also operate as a corporation or multi-member limited liability company, for example, and the contractor agreement with such an entity will be similar to an agreement with an individual who is an independent contractor.
In Texas, a contractor agreement is a legally binding document between a client and a contractor, where the contractor is engaged to perform services as an independent contractor rather than an employee. This distinction is important for tax purposes, as outlined by the Internal Revenue Code (26 U.S.C. §3509), which exempts the client from withholding income taxes and paying FICA taxes for an independent contractor. Texas law does not mandate a specific format for contractor agreements, but it is advisable to have a written contract to clearly outline the terms of the service arrangement. The agreement typically includes the scope of work, project duration, payment details, and clauses related to confidentiality, non-solicitation, and dispute resolution. It's important to note that whether a contractor operates as an individual, sole proprietor, single-member LLC, corporation, or multi-member LLC, the nature of the contractor agreement remains consistent in defining the relationship as one of independent contracting, thereby affecting the tax and legal obligations of the parties involved.
