If you get employed for the services as an independent contractor, the primary income you receive is the one from a customer who employs you and pays you according to the terms of your contract. This type of income must be reported in a way established by the IRS provisions and on their specific forms.
As soon as you have made an agreement with the contracting party you should be prepared to provide your taxpayer identification number on the printable w-9 form specifically designed by the IRS. The Contractor will use the information from this form to fill out your 1099-MISC after the end of the tax year in which you provided the services according to your contract.
1099-MISC is the most common form in such cases, but it is not the only one. Others that can be necessary are:
The contractor will use all of the applicable forms from mentioned above to claim the income on their tax return and pay taxes according to the established tax rates. All the income earned from the freelance work is normally defined as self-employment income. It usually requires the freelance contractor to make estimated tax payments throughout the year.
When it comes to calculating what you owe to the IRS, there are a lot of nuances to pay attention to in each separate case. However, the universal rule for the freelancers is to subtract the Social Security tax (the rate is 12.4% for self-employed individuals) and the Medicare tax, which is 2.9% for freelancers. All the calculation should be made based on net income amount. To calculate it you should multiply the total income by 92.35%.
There is additional 0.9% of Medicare tax to pay on the amount exceeding $200,000 annual income for individual filers, $250,000 for married filing jointly, and $125,000 married filing separately.
What if I get subject to backup withholding?
You can figure out the filing requirements in more details at the SSA or the IRS website.
For the proper filing of the IRS forms and form w 9 online in particular, it’s worth mentioning that in case indicating incorrect or improper taxpayer identification number on the W-9, the IRS will determine that the contractor is subject to backup withholding. If you receive the notification about the backup withholding, the IRS will the current flat rate which is 28%. Thus, to calculate how much you can expect to be withheld, you have to multiply your freelance income by 0.28. This amount must be taken into account when filling the individual tax return. Based in the IRS provisions and instruction, you can figure out if you should be given a refund or must make additional payments.
This was a great service. I was able to create and print out my documents in just 5 minutes. The step by step process was a breeze. Thanks again!