{"id":33345,"date":"2023-03-15T10:36:17","date_gmt":"2023-03-15T15:36:17","guid":{"rendered":"https:\/\/www.eztaxreturn.com\/blog\/?p=33345"},"modified":"2023-05-23T09:34:50","modified_gmt":"2023-05-23T14:34:50","slug":"freelance-taxes-101-a-guide-to-paying-taxes-when-youre-self-employed","status":"publish","type":"post","link":"https:\/\/staging.eztaxreturn.com\/blog\/freelance-taxes-101-a-guide-to-paying-taxes-when-youre-self-employed\/","title":{"rendered":"Freelance Taxes 101: A Guide to Paying Taxes When You\u2019re Self-Employed"},"content":{"rendered":"\n

Freelancing and self-employment are on the rise. In fact, an estimated 70.4<\/a> million people freelanced in 2022\u2014up from 67.5 million in 2021. And current estimates project half of the U.S. workforce will be self-employed by 2027. <\/p>\n\n\n\n

And it’s no surprise why. Freelancing brings a number of benefits, including flexibility, higher earning potential, remote and work-from-home offices, expanded career opportunities, and more. <\/p>\n\n\n\n

But there\u2019s one thing that makes most freelancers shudder: taxes.<\/p>\n\n\n\n

When you\u2019re an employee, taxes are typically straightforward. Your employer automatically withholds your taxes from your paychecks and issues your Form W-2, and you take your standard deduction. Easy peasy!<\/p>\n\n\n\n

Freelancers, however, have a more complicated tax situation. When you\u2019re a freelancer, you are responsible for tracking all income and expenses\u2014usually for multiple clients\u2014calculating and paying quarterly taxes throughout the year, and filing your annual return. <\/p>\n\n\n\n

If you\u2019re new to the world of freelancing and aren\u2019t sure where to start, you\u2019re not alone. Use this guide to self-employment taxes to stay on track.  <\/p>\n\n\n\n

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Tracking Freelance Income<\/strong><\/h2>\n\n\n\n

All income earned through your business as an independent contractor or from informal side gigs is considered self-employment income and is taxable. <\/p>\n\n\n\n

Unlike a W-2 job, where your employer handles income reports, running a freelance business\u2014whether full-time or as a side hustle\u2014means you need to track all your financials yourself. Keep careful records of both your business income and any expenses you may incur. <\/p>\n\n\n\n

As a freelancer, you likely work with multiple clients, which can make the tax prep season a little more cumbersome since you will need to report each source of income. If you earned more than $600 from your client(s), they are required to send you a Form 1099-NEC reporting the income paid to you that tax year.<\/p>\n\n\n\n

Note: You still need to report all income on Form 1040, even if you earned less than $600 from a client and don\u2019t receive a 1099-NEC from them. <\/p>\n\n\n\n

IRS forms you\u2019ll need:<\/strong> 1099-NEC (formerly 1099-MISC), 1099-K (if paid through PayPal or similar services)<\/p>\n\n\n\n

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Paying Self-Employment Taxes<\/strong><\/h2>\n\n\n\n

As a freelancer, you are your own boss. This means you are responsible for both income and payroll taxes<\/a> (i.e., self-employment taxes). Self-employment taxes are 15.3% of net earnings in 2022 and cover the FICA taxes (Social Security and Medicare) that businesses automatically withhold from W-2 employee paychecks.<\/p>\n\n\n\n

As a freelancer, you cover both the employee and employer portions of the tax. Your net earnings, for tax purposes, are your gross income from self-employment minus business expenses. <\/p>\n\n\n\n

Use IRS Schedule C to calculate your net earnings from self-employment. And use IRS Schedule SE to then calculate the self-employment tax you owe.<\/p>\n\n\n\n

IRS forms you\u2019ll need: <\/strong>Schedule SE<\/a>, Schedule C<\/p>\n\n\n\n

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Making Quarterly Estimated Payments<\/strong><\/h2>\n\n\n\n

When you\u2019re an employee, your employer withholds your taxes<\/a> on each paycheck to pay the government throughout the year. That\u2019s why, if you end up paying more than your tax liability, you get a refund when you file. <\/p>\n\n\n\n

For freelancers, you don\u2019t have an employer to automatically withhold taxes for you. But you are still responsible for paying taxes on your income throughout the year if you expect to owe more than $1,000. These are called quarterly estimated taxes<\/a>, which, as their name implies, are taxes you pay on your income every quarter. If you don\u2019t make your estimated tax payments and wait to pay when you file, you could be hit with late penalty fees.<\/p>\n\n\n\n

Estimated Tax Deadlines 2023<\/strong><\/p>\n\n\n\n