The IRS doesn't make it easy for 1099 independent contractors like you, does it? You're not an employee of the company you work for, so there's no W-2 to file. Nope - instead you get a 1099. Whether you work on Fiverr as a writer, marketer or freelance consultant, you'll need to file your independent contractor taxes. So how do you file your Fiverr 1099 taxes? Well, luckily there are ways to simplify the process. Let me show you how...
Note: If you want an easy way to handle all of the taxes for your Fiverr gigs, then try Bonsai Tax. Our tax software will help you organize all of your business deductions, remind you of filing deadlines, and estimate taxes. Users typically save $5,600 from using our app. Get your 14-day free trial here.
Remember, as a self-employed freelancer, you are solely responsible for reporting all of your income and paying all of the taxes you'll owe. Since Fiverr doesn't withhold any money from your earnings or what you are paid, you'll report and pay taxes on all of the income you make. Let's quickly review all of the taxes you will be responsible for.
Regardless of if you are an independent contractor or not, everybody has to pay income taxes. The main difference between State and Federal income taxes are:
Depending on what State you live in, will determine how much taxes you'll need to pay.
Social Security and Medicare or self-employment taxes turn out to be 15.3%. You'll pay 12.4% for Social Security to cover things like old-age, survivors, and disability insurance, and 2.9% for Medicare.
Note: Quickly estimate your taxes with Bonsai's free 1099 tax calculator. Use our tool to quickly discover how much taxes you'll owe to Uncle Sam at the end of the year.
Federal law sets a maximum amount of net income that are subject to the Social Security tax. For example, in 2021, the highest amount of earnings you'll pay taxes on is $142,800. So, if you earned $160,000, you won't pay Social Security taxes on $17,200.
As a rule, you won't need to worry about self-employment taxes if you were paid less than $400. You'll still need to pay income tax and Social Security and Medicare although you don't meet the $600 threshold to receive a 1099. The IRS will catch a lost 1099, so our advice is always to file.
For example, if you complete a one-off job and receive a $500 payment from it. You will not receive an IRS 1099 tax form for the completed freelance job, but you'll still need to fill out a tax return on that money since it is past the $400 threshold. So, the IRS will expect you to report that income.
Now that we talked about all the taxes you'll be liable for, let's go over all the different 1099s you'll receive as a Fiverr freelancer.
There are two forms you'll generally have to deal with as a Fiverr independent contractor. Businesses are required to send out these forms by January 31. We'll review the two forms. 1099-NEC and 1099-K, and their requirements here.
The most common 1099 form freelancers receive would be the 1099-NEC. The requirement to receive this 1099 form is if you earned more than $600 in payments from a business for your gigs. This form took over the reporting for non-employee compensation from the 1099-MISC in 2020. So, you'll receive the 1099-NEC instead. Businesses are only required to issue a 1099 if they paid a payee more than $600. So you may not receive a 1099 if you earned less than $600 but you may still be required to pay taxes.
The other form you'll receive as a Fiverr freelancer is the 1099-K. The form 1099-K is distributed if you received your payments from third-party payment processors like PayPal or if you make over $20,000 and have 200+ transactions. Depending on what State you are in, the requirements may vary.
If you live in Maryland, Virginia, Vermont, or Massachusetts then you'll receive a 1099-K if you earned more than $600 in payments from PayPal, regardless of how many transactions you made. In Illinois, you'll receive this form if you made at least 3 transactions and they totaled over $1,000.
If you didn't receive a 1099 in the mail, double-check if you met the requirements.
You can log into your Fiverr account and verify your reported payments. If you know that you met the requirements to receive a 1099, but you did not get a tax form, contact PayPal or Fiverr immediately to let them know. You can quickly check by going to the "earnings" tab on your Fiverr dashboard.
Another reason why you may not have received a form is if you put the wrong address on your account. So be sure to verify that all the information on your account is correct.
Most employees don't have to worry or care about withholding and the underpayment of income taxes. The employer practically will handle all of that. As a freelance contractor with 1099 income, you need to listen closely. If you'll owe more than $1,000 in taxes at the end of the year, the IRS requires you to pay quarterly taxes. Quarterly taxes are four estimated payments made to the IRS to cover your taxable income. This was designed to prevent freelancers from being overwhelmed by a large tax bill at the end of the year. Instead, you'll pay taxes on your revenue throughout the year.
Paying quarterly taxes is fairly simple. You can send them via the IRS's website. Here are the due dates for you to send in estimated tax payments.
If you pay all of your estimated taxes in the previous year on time, you won't have any extra fees tacked onto your tax bill. However, if you miss the payment date or pay fewer taxes than you should pay, you'll owe a tax underpayment penalty. Unfortunately, you would not be able to claim deductions on quarterly taxes. You'll need to organize and claim your business expenses between January to April 15 when it is time to file taxes.
If this is your first year as a Fiverr contractor, you can send the payments through these methods:
As a business owner, one of the luxuries you can take advantage of is business deductions to avoid paying taxes. Keeping track of your receipts for taxes is a surefire way to pay less money to Uncle Sam when you file your tax return.
Note: the quickest and simplest way to track expenses is to use an expense tracker like Bonsai Tax. Bonsai Tax organizes all your tax deductions for you by scanning your credit card/ bank statements so you can maximize your tax savings. In fact, users typically save $5,600 from using our app. Try a 14-day free trial here.
Here's a list of common tax-deductible expenses for freelancers to claim.
The end of the year is a great time to take care of personal and business taxes. If you’re an independent contractor (1099) with Fiverr, then it's your responsibility to report all income and expenses on Schedule C as well as pay quarterly estimated taxes throughout the year. Our tax software for freelancers can help simplify this process for you by automatically calculating what you owe in federal and state taxes every quarter and provide reminders when they're due. You'll never have to worry about forgetting or paying too much again! Try Bonsai Tax today — we know how hard it can be as a small business owner juggling everything else going on in life! Claim your 14-day free trial here.
We always suggest you talk to an accountant or professional for any freelance contractor tax questions or advice.
A verbal contract (formally called an oral contract) refers to an agreement between two parties that's made —you guessed it— verbally.
Formal contracts, like those between an employee and an employer, are typically written down. However, some professional transactions take place based on verbally agreed terms.
Freelancers are a good example of this. Often, freelancers will take on projects having agreed on the terms and payment via the phone, or an email. Unfortunately, sometimes clients don't pull through on their agreements, and hardworking freelancers can find themselves out of pocket and wondering whether a legal battle is worth all the hassle.
The main differences between written and oral contracts are that the former is signed and documented, whereas the latter is solely attributed to verbal communication.
Verbal contracts are a bit of a gray area for most people unfamiliar with contract law —which is most of us, right?— due to the fact that there's no physical evidence to support the claims made by the implemented parties.
For any contract (written or verbal) to be binding, there are four major elements which need to be in place. The crucial elements of a contract are as follows:
Therefore, an oral agreement has legal validity if all of these elements are present. However, verbal contracts can be difficult to enforce in a court of law. In the next section, we take a look at how oral agreements hold up in court.
Most business professionals are wary of entering into contracts orally because they can difficult to enforce in the face of the law.
If an oral contract is brought in front of a court of law, there is increased risk of one party (or both!) lying about the initial terms of the agreement. This is problematic for the court, as there's no unbiased way to conclude the case; often, this will result in the case being disregarded. Moreover, it can be difficult to outline contract defects if it's not in writing.
That being said, there are plenty of situations where enforceable contracts do not need to be written or spoken, they're simply implied. For instance, when you buy milk from a store, you give something in exchange for something else and enter into an implied contract, in this case - money is exchanged for goods.
There are some types of contracts which must be in writing.
The Statute of Frauds is a legal statute which states that certain kinds of contracts must be executed in writing and signed by the parties involved. The Statute of Frauds has been adopted in almost all U.S states, and requires a written contract for the following purposes:
Typically, a court of law won't enforce an oral agreement in any of these circumstances under the statute. Instead, a written document is required to make the contract enforceable.
Contract law is generally doesn't favor contracts agreed upon verbally. A verbal agreement is difficult to prove, and can be used by those intent on committing fraud. For that reason, it's always best to put any agreements in writing and ensure all parties have fully understood and consented to signing.
Verbal agreements can be proven with actions in the absence of physical documentation. Any oral promise to provide the sale of goods or perform a service that you agreed to counts as a valid contract. So, when facing a court of law, what evidence can you provide to enforce a verbal agreement?
Unfortunately, without solid proof, it may be difficult to convince a court of the legality of an oral contract. Without witnesses to testify to the oral agreement taking place or other forms of evidence, oral contracts won't stand up in court. Instead, it becomes a matter of "he-said-she-said" - which legal professionals definitely don't have time for!
If you were to enter into a verbal contract, it's recommended to follow up with an email or a letter confirming the offer, the terms of the agreement , and payment conditions. The more you can document the elements of a contract, the better your chances of legally enforcing a oral contract.
Another option is to make a recording of the conversation where the agreement is verbalized. This can be used to support your claims in the absence of a written agreement. However, it's always best to gain the permission of the other involved parties before hitting record.
Fundamentally, most verbal agreements are legally valid as long as they meet all the requirements for a contract. However, if you were to go to court over one party not fulfilling the terms of the contract, proving that the interaction took place can be extremely taxing.
So, ultimately, the question is: written or verbal agreements?
Any good lawyer, contract law firm, or legal professional would advise you to make sure you formalize any professional agreement with a written agreement. Written contracts provide a secure testament to the conditions that were agreed and signed by the two parties involved. If it comes to it, a physical contract is much easier to eviden in legal circumstances.
Freelancers, in particular, should be aware of the extra security that digital contracts may provide. Many people choose to stick to executing contracts verbally because they're not sure how to write a contract, or they think writing out the contract terms is too complicated or requires expensive legal advice. However, this is no longer the case.
Today, we have a world of resources available at our fingertips. The internet is a treasure trove of invaluable information, platforms, and software that simplifies our lives. Creating, signing, and sending contracts has never been easier. What's more, you don't have to rely on a hiring a lawyer to explain all that legal jargon anymore.
There are plenty of tools available online for freelancers to use for guidance when drafting digital contracts. Tools like Bonsai provide a range of customizable, vetted contract templates for all kinds of freelance professionals. No matter what industry you're operating in, Bonsai has a professional template to offer.
A written contract makes the agreement much easier to prove the terms of the agreement in case something were to go awry. The two parties involved can rest assured that they're legal rights are protected, and the terms of the contract are sufficiently documented. Plus, it provides both parties with peace of mind to focus on the tasks at hand.
Bonsai's product suite for freelancers allows users to make contracts from scratch, or using professional templates, and sign them using an online signature maker.
With Bonsai, you can streamline and automate all of the boring back-office tasks that come with being a freelancer. From creating proposals that clients can't say no to, to sealing the deal with a professional contract - Bonsai will revolutionize the way you do business as a freelancer.
Why not secure your business today and sign up for a free trial?