Freelancers enjoy an incredible amount of freedom, but they also have more responsibilities than traditional employees. For example, tax preparation tends to be more complicated for self-employed workers—with more complex deductions and additional liabilities. Understanding the tax differences between freelancers and other workers will help streamline the process and keep you out of trouble with the IRS.

3 Tax Differences Between Freelancers & Traditional Employees

1. Self-Employment Tax

Employees who work for someone else are only responsible for a portion of their Medicare and Social Security taxes, the rest of which are covered by their employer. Independent contractors, on the other hand, are responsible for the full amount, on top of their income taxes and other liabilities. For 2019, the self-employment tax rate is 12.4% for Social Security and 2.9% for Medicare.

2. Estimated Tax Payments

If you’re self-employed, you’re also responsible for calculating your own tax liability and submitting payments to the IRS. Most freelancers are required to send in estimated taxes on a quarterly basis or face significant fines and interest fees on past-due amounts. Failing to send in enough could result in a surprise tax bill when tax preparation season comes around. 

3. More Available Deductions

Most employed workers can simply claim the standard deduction, but freelancers can claim a wider variety of expenses. Even if you don’t itemize, you can still write off equipment and supplies, travel expenses, and a wide range of other business purchases. Some freelancers may also be able to take an automatic 20% deduction on their qualified business income, substantially lowering your tax liability.

Tax preparation can be confusing, especially for freelancers who have to handle everything themselves. With over 30 years of combined experience serving businesses and individuals throughout Texarkana, TX, Erie & Associates, P.C. uses their detailed knowledge of the code to take the stress out of the process and help eliminate common mistakes that could result in an IRS audit. Visit their website for more on their tax preparation services, or call (903) 792-6651 to make an appointment today.