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43% of the workforce will be comprised of freelancers. You are not alone if you’re considering giving up the traditional 9-5 job. There are some vital things about freelancing for beginners that you should know; for example, the difference in your responsibilities and your employer’s obligations towards you.
Keep reading this blog as we will discuss relevant information about filing tax forms for new freelancers.
Taxes and Freelancing For Beginners
The crucial difference you will experience as a 1099 MISC form vs. a W-2 form employee is how you pay your taxes. Freelancers receive 100% of their salary from their employers and must set aside a small portion of their earnings to settle with the government during the tax season.
If you’re an employee who receives a W-2, the employer will withhold a percentage of your salary for Social Security and Medicare taxes (FICA).
Your employer pays 50% of the taxes. When tax time arrives, you submit your W-2 and settle any differences with the IRS. As a freelance employee, it is crucial to consider your tax burden yearly.
While it is convenient and helpful to have extra cash at your disposal, take your time when April comes, and you may potentially owe the government a considerable sum of money.
One main advantage of 1099s vs. W-2s is that you can write off many routine expenses while settling your taxes.
FAQ's
What is a 1099 form, and when do freelancers receive it?
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A 1099 form is provided to freelancers by clients who paid them $600 or more during the tax year, detailing earnings for independent contractor work.
What is a W-2 form, and how does it differ from a 1099?
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A W-2 form is issued by employers to employees, detailing wages earned, taxes withheld, and benefits received. Unlike a 1099, it reflects traditional employment.
What are the tax implications of receiving a 1099 versus a W-2?
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Freelancers receiving a 1099 are responsible for paying self-employment taxes, while employees with a W-2 have taxes withheld by their employer.
How do I know if I should expect a 1099 or a W-2 as a freelancer?
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Generally, if you work as an independent contractor and have control over your work, you'll receive a 1099. If you're an employee, you'll receive a W-2.
