Freelancer taxes refer to the income and self-employment taxes you must pay on your freelance earnings. Unlike traditional employees, you manage your own tax obligations.
What is Freelancer taxes?
Freelancer taxes are the payments you make to federal and state governments on your self-employed income. This includes income tax and self-employment tax, which covers Social Security and Medicare. You are responsible for calculating and submitting these payments yourself.
Why is this important?
Managing your taxes is crucial for legal compliance and avoiding penalties. Unlike a salaried job, taxes aren't automatically withheld from your pay. You must proactively set aside money and file returns to meet your obligations throughout the year.
How does it work?
You typically pay estimated taxes quarterly to the IRS and your state. You report all income from clients, whether received via platforms or direct contracts. You can then deduct eligible business expenses to lower your taxable income before calculating what you owe.
Pros and cons
A key advantage is access to many business deductions, like home office costs and software. The main challenge is the administrative burden and the need for disciplined saving, as you must cover both the employee and employer share of payroll taxes.
Conclusion
Understanding freelancer taxes is a fundamental part of running your independent business. By planning for quarterly payments and tracking deductible expenses, you can manage your finances effectively. Consider consulting a tax professional for personalized advice.
Ready to freelance?
Download the HFS Freelancers app and discover flexible shifts in your area. Or explore more terms in our knowledge base.
