We are in a new era where individuals more than ever enjoy working from home or remote locations. This means that more and more people are being paid as 1099 workers rather than w-2 employees. In fact, a recent study showed that nearly half of millennials are already freelancing, which is significant. This means that over a staggering 50 million people are freelancing just in the United States, and that impact on the economy has grown significantly from the past year – around 30 percent — and contributed an astonishing $1.4 trillion. It’s safe to say that this isn’t a “trend”, but as a major shift.
Of course, with this freedom, comes responsibilities — in the form of taxes. Here are some things to keep in mind if you are a freelancer, private contractor, or otherwise fit the 1099 worker mold.
Tax Law Tips For Contractors: Pay To Employ Yourself
Yes, you read that right. There is a self-employment tax that you have to pay, which many might not have known about. FICA payments are contributions to national institutions such as Social Security and Medicare – and just because you are living the freelancer life, doesn’t mean that you are off the hook. In fact, a W2 worker only pays half of this fee, and the employer pays the other half. Since you are employing yourself – you guessed it – you have to pay the full 15.3%. After all, you are both your employee, and your employer, at the same time. It’s important to remember this when you are organizing your taxes.
Tax Law Tips For Contractors: Save, Save, Save
Freelancing can be tough work. You have to deal with employers that might take a while to pay, and you certainly do not have the stability of other jobs, when you know that a certain check, with a certain amount is coming. If you are a 1099 worker, it’s important to elevate from the “check to check” mentality and truly have some money tucked away. As a contractor or 1099 worker, your employer will not be withholding taxes for you. Meaning, it is very important that you put money aside for taes each month. Even if you are a successful private contractor, it’s important to not spend all your income so that you can meet your tax obligations without any delay.
Tax Law Tips For Contractors: Every Quarter
Although in the past you might have only paid taxes once a year – at tax day – as an independent contractor you may have to make quarterly estimates. Employers often handle taxes for their employees monthly, but if you are a private contractor, you have to pay taxes quarterly, as long as your liability will exceed $1000. This is yet another reason to put aside some more money.