What is the definition of a freelancer?
A freelancer is someone who works for a fee per work or per project, generally for a short period of time. Because a freelancer is not a worker for a company, he or she may be free to work on multiple jobs for separate clients or companies at the same time, unless legally bound by a contract to work exclusively on one project until it is completely finished.
RELEVANT TAKEAWAYS
A freelancer is a self-employed worker who is paid on a job-by-job or task-by-task basis, usually for short-term projects.
Freelancing offers the flexibility to operate from home or a non-traditional workplace, as well as a healthier work-life balance.
An independent journalist, for instance, is a freelancer who writes on topics and stories of their own discretion and then publishes them to the highest bidder.
Freelancers: An Overview
Freelancers are generally deemed independent employees who can conduct their contractual work full-time or part-time to augment full-time employment, depending on their schedule. As independent contractors, freelancers often demand contractual agreements for the job to be completed and will agree to a fixed fee depending on the duration and labor needed to perform the work. This cost could be a fixed amount, a charge per hour, per day, per project, or something else entirely.
A freelancer usually works in the creative or artistic, skilled, or service industries, such as movies, art, design, editing, content writing, proofreading, communications, advertising, entertainment, acting, journalism, video editing and production, travel industry, consultancy services, web development, programming, event management, photography, language translation, tutorials, foodservice, and many other fields.
Taxes for Freelancers
Freelancers are classified as self-employed by the Internal Revenue Service (IRS). Unlike an employee of a firm, a self-employed person does not have their taxes withheld by the enterprise for which they do work. Collecting income taxes, therefore, is solely the freelancer’s duty, and projected taxes must be paid upfront in quarterly payments. In contrast to income tax, a freelancer must pay the IRS-mandated self-employment tax. A freelancer who makes $400 or more in a year is subject to the self-employment tax. The tax is divided into two parts: one for Social Security and one for Medicare.
Due to the IRS’s classification of freelancers as company owners, they must pay self-employment tax both as an owner and a worker. In 2021, the Social Security tax was levied at a rate of 6.2 percent for employers and 6.2 percent for employees (the rate for both employers and employees is set to hold steady in 2021). Because they are both an employer and an employee, a freelance worker, such as a freelancer, will be charged at 6.2 percent plus 6.2 percent, equaling 12.4 percent. In 2021, the Social Security tax is only levied on the first $142,800 of income received (the so-called taxable amount will be increased to $147,000 in 2022). The 2021 Medicare tax rate is 2.9 percent for self-employed workers, which is 1.45 percent for both companies. A freelancer’s overall self-employment tax rate is consequently 12.4 percent + 2.9 percent = 15.3 percent.
Freelancers may be eligible for specific tax breaks that company owners may obtain on business costs. According to the IRS, these must be regular and essential costs (O & NE) for the company’s functioning. This means that a freelancer cannot be reimbursed for an item that they would have purchased regardless of the business. Home office tax deductions, such as lease and utilities, travel expenses to and from work, costs of hosting a customer, the cost of training or accreditation directly related to the business sector, and other expenses are examples of write-offs that can be claimed.
In the United States, freelancers are not issued W-2 forms for income tax reasons, but rather a 1099-MISC tax form, which normally does not contain any tax withholdings. Throughout a given tax year, a freelancer who provides services to many clients will obtain 1099-MISC forms from every one of those clients.
Important:
Because no taxes are deducted from their checks, freelancers are obligated to pay estimated earnings taxes to the IRS both in advance and on a quarterly basis.
The Advantages and Disadvantages of Working as a Freelancer
The opportunity to operate from home or other unusual workstations, a versatile work schedule, and a healthier work harmony are all advantages of being a freelancer. Employees who have been laid off can gain from freelance work, lowering the prevalence of general unemployment in an economy.
The disadvantages include unpredictability regarding future earnings, stable employment, and regularity in finding new work. There are also fewer employer benefits, such as insurance and pension plans, and occasionally lower hourly wages when compared to salaried employees. Aside from individuals who qualified for Epidemic Unemployment Assistance (PUA) during the pandemic, freelancers are not eligible for unemployment protection.
Freelancer Examples
A great example of a freelancer is a self-employed reporter who writes on topics of their own discretion and then offers their work to the highest buyer. Another example is a web developer or software engineer that provides a one-time service for a client before moving on to the next.