Now is the right time to start freelancing if you want to, because the market is presently huge. It has been discovered that 34% of people living in the US do some kind of freelance work. About 77% reported that they make quite a lot working as an independent contractor. Now, that's interesting, and you might want to dive into freelancing too because of this information.
You should understand alongside this interesting information that freelancing business comes with tax responsibilities, and many freelancers have issues estimating their taxes. You cannot evade tax as a freelancer and escape it; you will still have to pay your freelance taxes USA should you work independently in the USA.
Companies are expected by the US tax laws to report money earned, whether by their freelance contractors or full-time employees to the IRS. Companies that failed to do this in the past have faced tax penalties and audits by the IRS. An independent contractor, freelancer, or consultant in the US who earns $400 or more from business activity is expected to pay freelance taxes USA to the IRS.
Five criteria set by the IRS that makes freelancers that earn less than $400 file a return are the following:
US tax laws expect you to pay freelance taxes USA by April 15th annually. As a freelancer, you can pay quarterly or annually. Failure to pay at the right time incurs an additional 6-8% on the right amount to be paid at that time. The equivalent of a W-2 form for as freelancer is the 1099 form. This form is of two types which are:
Freelance taxes USA comprises of the income tax and the self-employed contributions tax. The self-employed contributions tax makes 15% of the freelance income and covers your Medicare payments and Social Security. You use the Schedule SE form to file a return for the IRS. Due to complications in taxes, a freelance tax calculator and software may be helpful in tracking and estimating your annual tax contributions.
For your income tax, which is based on the AGI –Adjusted Gross Income, It is the total income minus legal deductions. It is with your AGI that you calculate how much freelance taxes USA you will pay. The individual tax bracket also affects that calculation.
After all these, April 15th will be the day you will submit both the Schedule SE and Form 1040 to determine how much you overpaid or underpaid.