Freelancers Owe Taxes, Too

Having an employer has some perks. One of them is that someone else figures out all the tax stuff for you. Freelance writers (and other freelancers, too) are subject to a wonderful tax known as the self-employment tax.

The self-employment tax is basically double the Medicare and social security tax that you’d pay as an employee. The way the government sees it, you’re essentially an employer (of yourself) and an employee (of yourself). As such, you should be paying employer and employee taxes.

As of 2008, the self-employment tax rate is 15.3% of your income. 12.4% goes toward social security. The other 2.9% goes toward Medicare. Anything you make over $102,000 is only subject to the Medicare tax rate of 2.9%.

Anyone who expects to owe more than $1,000 in income taxes is required to pay taxes throughout the year. When you’re employed by a company, they withhold your taxes for you. However, as self-employed individuals, we’ve taken on the responsibility of figuring up taxes and sending the tax check to the IRS. Use IRS Form 1040-ES to calculate your estimated taxes. The IRS requires estimated taxes to be sent on a quarterly basis.

Tax rules are complex and the information I’ve included here is simply a brief overview. You can understand more about self-employed taxes from the IRS website, your accountant, or a professional tax preparer.