And, if your net earnings exceed $400, you need to report them. In other words, for the purposes of paying taxes, you’re a one-person business. Step #1: Reporting incomeĪs a freelancer, the IRS sees you as a self-employed individual, and you’re subject to different tax rules than employees. ![]() Here, we’ll explain each step in greater detail. Tax filing for independent contractors can seem scary to beginners - but it doesn’t have to be difficult. But, they are generally advised to set aside 25% to 30% of their taxable yearly income to pay all their yearly taxes. The exact amount freelancers should pay in taxes varies on a case-by-case basis. So, how much should you set aside for taxes as an independent contractor? ![]() Therefore, you’re in charge of reporting your earnings and handling your tax obligations, as there’s no employer to withhold taxes from your income. Difference between a freelancer, a contractor, and an employee How to file taxes as an independent contractor in 4 stepsĪs an independent contractor, you’re self-employed. On the other hand, you’re not an independent contractor if your payer (in this case, your direct employer) has the legal right to control how you do your work - even if you’re generally provided the freedom of action. Sometimes, they’re also referred to as 1099 employees - which is a misnomer since they do not work under an employer.Īccording to the IRS, you are an independent contractor if your payer only has control over the results of your work, and you remain in control of what you do and how you do it. The latter term stems from the name of a form payers use to report the compensation paid to contractors (which we’ll explain in more detail later). Independent contractors are otherwise referred to as freelancers or 1099 workers. In other words, independent contractors perform work for third parties as nonemployees. What you can do to reduce your tax liabilityĪn independent contractor is a self-employed individual hired by third-party entities to provide goods or services. ![]()
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