When I started my career, back in the 80s, the independent contractor was the "rock star" of software development career field. Would work at $MajorCorporation and bill directly, and make $100-$250 per hour or more. This tax code change, as well as some other regulations and tax issues mostly eliminated such direct consultants. Instead, a corporation like American Express would select several approved vendors and consultants would have to work for these firms in order to get work as a consultant.

The shift meant a reduction in rates and another middleman to carve up the billable amount. It didn't totally eliminate the independent contractor but it certainly put the kibosh on it as most of the corporate world (big employers) funneled those positions to a set of preferred vendors.

And which was exacerbated further with the rise of offshore vendors (who supplanted domestic bodyshops) and NIV workers.

IANAL, and I might be misreading the law (http://www.synergistech.com/1706.shtml), but the way I understand it is that if non-tech company A needs some tech work done, and they hire tech service company B to get it done for them, company B is not allowed to farm out that work to individual contractor C without treating C as an employee for tax purposes.

So if you're an independent contractor and you get your own business, you should be fine.

If someone knows this to be incorrect, please let me know.

EDIT: nevermind me, read grellas comment.

I am individual contractor C, and company B pays me hourly as a contractor. I do most (95%) of my work for various clients of company B, but they are mainly concerned with my results, not every detail of my work. If I have questions, I usually ask the A's directly.

I believe I am operating properly here.