Finance

Freelance Taxes in the USA - A to Z Guide

freelance-taxes-in-the-usa-a-to-z-guide

If you started your freelance business, you are now officially in the category of self-employed professionals in the USA, and you should be ready to pay the self-employment tax. 

Understanding freelance taxes and how to fill a freelance tax form are always complicated tasks for independent professionals. So how to pay taxes as a freelancer? 

So how to pay the tax on freelance work? What is the freelance tax rate? How much tax do you pay on your freelance work? These are all critical questions to be answered. Let’s have a look at the questions and answers on freelance jobs taxes A to Z. 

 How much do you have to make to file taxes as a freelancer?

Generally, you must pay freelance tax if you have earned  $400 net or more from self-employment. 

The amount subject to freelance tax is 92.35% of your all income from self-employment. Don’t forget, in the US, you have to pay 7.65% of your income, even if you are self-employed or you are hired by a company.  

A self-employed freelancer should pay the freelancer taxes, which refers to Medicare and Social Security taxes. Without exception, everyone living and working in the US should pay these two taxes, which is 15.30% for the freelancer in 2020. 

If you are confused about numbers and calculations, check the below example to understand how much tax you pay for freelance work. 

An Example Calculation For Freelance Taxes 

If you are a freelancer, your Social Security tax rate is 12.4 percent, and your Medicare tax is 2.9 percent on those same amounts of net earnings.  

For example, if you are a single freelance designer, who had a net income for $10.000. 

Social Security Tax

$1.240

Medicare Tax

$290

Total

$1530

Also, you have to pay an extra 0.9% Medicare tax on the amount that your annual income exceeds $200,000 for singles, $250,000 for married people, and $125,000 married filing separately. You can see the income threshold for extra freelance taxes. 

Filing Status

Income Threshold

Single

$200.000

Married filing jointly

$250.000

Married filing separate

$125,000

How to File Taxes as a Freelancer? 

Be Sure You Have the Social Security Number 

First of all, if you are ready to pay your freelance taxes, you should first be sure that you have a Social Security number (SSN) or a taxpayer identification number (ITIN). 

Obtaining a Social Security Number

If you don’t have a Social Security Number or Card, you have to apply for one by starting to fill the form you can download from the Social Security Number and Card website.

Obtaining an Individual Taxpayer Identification Number

If you have to apply for an Individual Taxpayer Identification Number, check the Form W-7, Application for IRS Individual Taxpayer Identification Number

Fill the Tax Documents and Forms 

To start the self-employment tax payment process, the first thing you should do is download the freelance tax form, Form 1040-ES to learn if you have to pay quarterly freelance taxes. This form will also explain if you should mail your estimated tax payments or pay your self-employment taxes on the Electronic Federal Tax Payment System (EFTPS). If you are new to freelancing, you have to evaluate your expected income for that year. 

If your estimations fail because they are too high or low, you can fill another document Form 1040-ES to reevaluate the freelance taxes you should pay in the next months. 

For more information, you can always look into official government pages explaining Estimated Taxes and the Self-Employment Tax that explains Social Security and Medicare taxes in detail. 

If you are going to file a yearly tax return, you have to file Schedule C (PDF) to declare your freelance business income and loss. If you need further explanation on the topic, check Instructions (PDF). So how to pay taxes as a freelancer? To pay Social Security and Medicare taxes, you must fill the following form:

Schedule SE (Form 1040 or 1040-SR )Self-Employment Tax (PDF)

How Much Tax Do You Pay on Freelance Work?

Freelancer taxes are calculated from the percentage of all your net earnings. The rate is 12.4% for social security and 2.9% for Medicare taxes. Your net earnings are what is left after you subtract business expenses from your gross earnings. 

When Do Freelancers Pay Taxes?

Those who are subject to self-employment should pay freelance taxes quarterly. According to the IRS, you should follow the deadlines below for the self-employment tax year 2020.

First payment

July 15, 2020

Second payment 

June 15, 2020

Third payment

September 15, 2020

Fourth payment

January 15, 2021

The Good News About the Freelancer Tax Deductions 

Founding your own business as a self-employed freelancer requires a lot of work, but nothing compares to the feeling of becoming the boss of your business. In addition, employed people can not benefit the deduction system as much as self-employed freelancers. We might hear you say that paying self-employment taxes is not entertaining. You may have a point, but we have a piece of good news for you. You can make deductions of half of your freelancer taxes from your net self-employment income.

The Good News About the Freelancer Tax Deductions 

You can declare half of your tax payment as an income tax deduction. From retirement plan contributions to home office expenses, you can deduct many expenses.

If you need an example, a $2,000 self-employment tax payment reduces taxable freelance income by $1,000. It’s not important if you spent your dollars with cash or with a credit card. As long as you have the receipt, you can deduct your expenses. 

To see an example, you can visit this page

 List of Deductible Expenses

  • Home office
  • Internet and phone bills 
  • Health insurance premiums 
  • Meals 
  • Travel
  • Vehicle use
  • Interest
  • Publications and Subscriptions
  • Education
  • Business insurance
  • Rent 
  • Startup costs
  • Advertising
  • Retirement plan contributions

Frequently asked questions

  • Do Freelancers Pay Taxes?

Yes, a freelancer should pay a self-employment tax if he or she has net earnings from self-employment of $400 or more. 

  • Do Freelancers Pay Income Tax?

Yes, they should pay freelancers taxes if they are self-employed or a sole proprietor (including an independent contractor), a partner in a partnership, or are otherwise in business for themselves, and they earn of $400 or more. 

  • Do Freelancers Pay More Taxes?

The law sets the self-employment tax rate as a percentage of your net earnings from self-employment. This rate consists of 12.4% for social security, and Medicare tax applies 2.9%.

Please be aware, the amount subject to freelance tax is 92.35% of your all income from self-employment. It's because you have to pay 7.65% of your income tax in the US, even if you are self-employed or hired by a company. 

  • Do Freelancers Get Tax Refunds?

Yes, they can claim 50% of what they pay in self-employment tax as an income tax deduction. Check out Freelancer Tax Deductions.

  • How Much Should I Save For Taxes Freelance?

The law sets the self-employment tax rate as a percentage of your net earnings from self-employment. You should save 12.4% for social security and 2.9% for Medicare.

  • Do Freelance Photographers Pay Taxes?

Yes, freelance photographers do pay taxes like any other freelancer if they earn $400 or more. The law sets the self-employment tax rate as a percentage of your net earnings from self-employment. This rate consists of 12.4% for social security and 2.9% for Medicare taxes. 

Please be aware, the amount subject to freelance tax is 92.35% of your all income from self-employment. It's because in the US; you have to pay 7.65% of your income, even if you are self-employed or hired by a company. 

Visit the IRS website for more information.

  • Do Freelance Designers Charge Tax?

Yes, freelance designer taxes should be paid according to the rules. The law sets the self-employment tax rate as a percentage of your net earnings from self-employment. This rate consists of 12.4% for social security and 2.9% for Medicare taxes. 

You must pay the freelance tax if you have earned  $400 net or more from self-employment. The amount subject to freelance tax is 92.35% of your all income from self-employment. 

Visit the IRS website for more information.

  • Do Freelance Writers Pay Taxes?

Yes, freelance writer taxes should be paid according to rules. The law sets the self-employment tax rate as a percentage of your net earnings from self-employment. This rate consists of 12.4% for social security and 2.9% for Medicare taxes. 

Generally, you must pay freelance tax if you have earned $400 net or more from self-employment. 

Visit the IRS website for more information.

  • Do Freelance Artists Pay Taxes?

Yes, paying taxes as a freelance artist is the same as any other freelancer tax payment. The law sets the self-employment tax rate as a percentage of your net earnings from self-employment. This rate consists of 12.4% for social security and 2.9% for Medicare taxes. 

Generally, you must pay freelance tax if you have earned  $400 net or more from self-employment. The amount subject to freelance tax is 92.35% of your all income from self-employment. Don’t forget, in the US; you have to pay 7.65% of your income tax, even if you are self-employed or hired by a company. 

Visit the IRS website for more information.

author name

İpek Tüzün

İpek Tüzün is a human being, digital marketing person, writer, researcher on the future of work, and sci-fi fan based on earth. Read more...

Start a Virtual Company today

No setup fee. No subscription fee.
Flat pricing when you get paid.

No Setup Fee - No Paperwork - No Bureaucracy