DEFINITION of ‘Freelancer’
A freelancer is an individual who earns money on a per-job or per-task basis, generally,normally for short-term work. A freelancer is not an employee of a firm, and may therefore be at liberty to total different jobs concurrently by various individuals or firms, unless contractually specified to work exclusively until a specific project is completed.
Typically, freelancers are considered independent workers and may enact such contract work full-time or as a side job to supplement some other full-time employment, time permitting. Freelancers, as independent contractors, typically require signed contracts for the job to be done and will agree to a pre-determined fee based on the time and effort required to total the task. This fee may be a flat fee or a per-hour, per-day, per-project fee, or some other similar degree.
BREAKING DOWN ‘Freelancer’
A freelancer tends to work in the creative, skilled or service sector such as in: film, art, design, editing, copywriting, proofreading, media, marketing, music, acting, journalism, video editing and production, illustration, tourism, consulting, web site development, computer programming, event planning, photography, language translation, tutoring, catering, and many more. An example of a freelancer would be an independent journalist who reports on stories “at large” and then sells his or her legend to the highest bidder. Another example is a web designer or app developer who does one-time work for a client and then moves on to another client.
The Internal Revenue Service (IRS) categorizes freelancers as self-employed. A self-employed worker, unlike an employee of a company, does not hold his taxes withheld by the company s/he is doing commerce, trade with. Paying income taxes is therefore, the sole responsibility of a freelancer. In addition to the income tax, a freelancer is also subjected to the self-employment tax mandated by the IRS. The self-employment tax applies to a freelancer who earned $400 or more in any given tax year. The self-employment tax has two components, namely Social Security and Medicare tax.
Since the IRS considers freelancers to be commerce, trade owners, freelancers hold to pay self-employment tax as both an employer and employee. For example, Social Security tax is assessed at a rate of 6.2% for an employer and 6.2% for the employee. An independent worker such as a freelancer would be taxed 6.2% + 6.2% = 12.4%, as s/he is considered to be both an employer and an employee. The Social Security tax is only applied to the first $127,200 income earned. The Medicare tax rate, which is 1.45% for both entities, is 2.9% for the self-employed worker. Total self-employment rate that a freelancer has to pay is therefore, 12.4% + 2.9% = 15.3% (as of 2017).
Freelancers may qualify for certain tax deductions that commerce, trade owners can claim on their commerce, trade expenses. According to the IRS, these expenses hold to be ordinary and essential for the operation of the commerce, trade. This means that a freelancer would not be able to claim a deduction on an expense that s/he would normally get without the commerce, trade. Some examples of deductions that can be claimed include domestic office deductions such as rent and utilities, costs of traveling to a job, costs of entertaining a client, costs of courses or certifications that directly relate to the commerce, trade profession, etc.
In the U.S. freelancers enact not receive W-2 forms for income tax purposes and instead will file a 1099 Misc. tax form which does not typically include any tax withholdings. A freelancer who if services to multiple clients during a given tax year, will receive 1099 Misc forms from each of those clients.
Benefits of freelancing include freedom to work from domestic, flexibility of work schedule and a better work/life balance. Freelance work can benefit workers who hold been laid off, reducing the incidence of overall unemployment in an economy.
Drawbacks include uncertainty approximately future income, job stability and consistency with getting recent work. There is also a lack of typical employer benefits such as insurance and retirement plans, and typically lower per-hour rates compared to employed salary earners.