How To File Your Taxes If Youre A Freelancer
If you freelance â either as your primary job or your side hustle â the way you file your taxes will be different than someone who works a salaried position and gets a W-2. And, the more jobs and 1099s you have, the more confusing the process may become. So if you wonder how to file taxes as a freelancer, thatâs a great question.
According to TurboTax, aside from regular income tax, freelancers must pay self-employment tax, too â 15.3 percent â which represents Social Security and Medicare taxes that non-freelancers automatically have taken out of their paychecks.
âAlmost any earned income you made â even if you were paid in cash and even if it was from part-time work or a side gig â is taxable,â Josh Zimmelman, owner of Westwood Tax & Consulting, tells Bustle. âThe way you report your income varies based on whether it was earned as an employee or an independent contractor, but it still is all taxable â the IRS doesnât care how you make your money, but they do want their cut.â He also says to keep in mind that just because you do not receive a 1099 for freelance income, you still need to report that income.
Below, tax experts weigh in on how to file taxes as a freelancer so you can avoid common mistakes.
Income Tax Return For Unemployed
If you were unemployed for even part of the tax year, youre likely wondering if you need to file a tax return. The answer depends on your age, filing status and income. Whether youre employed or not is not the IRSs concern. They simply want to know how much you earned, how much you paid in taxes throughout the year and whether you qualify for any credits.
Before you file an unemployed tax refund, one easy way to determine whether you need to file at all is to use the IRS Interactive Tax Assistant. There youll be asked your marital status, filing status and a few questions about any income or benefits you received. If you, for instance, were unemployed but received Social Security benefits, you may still be required to file a tax return.
Coronavirus Unemployment Benefits And Economic Impact Payments
You may have received unemployment benefits or an EIP in 2020 due to the COVID-19 pandemic.
Unemployment compensation is considered taxable income. You must report unemployment benefits on your tax return if you are required to file.
If you received the EIP, you do not need to report it as income whether youre required to file a tax return or not. If you did not receive some or all of your stimulus payments, you may claim missing stimulus money that you are owed by filing for a Recovery Rebate Credit on your 2020 return.
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The Unemployment Tax Waiver Could Save You Thousands Of Dollars
This tax break could provide a tax savings of thousands of dollars depending on your tax situation.
With current individual tax rates ranging from 10% to 37%, the potential tax savings can vary from $1,020 to $3,825, Johnson says. The amount, of course, depends on the taxpayers filing status, income and other factors, such as deductions claimed on the tax return.
For example, if you qualify for the $10,200 tax break, youre single and are in the 22% tax bracket, you may qualify for a tax savings of $2,244. And if you are married and both you and your spouse qualify for the tax break, you may be able to save $4,488.
File Your Taxeseven If You Didnt Work A Day In 2016
There are a lot of people who believe that because they didnt work last year, they dont have to file taxes, says Flores. But thats a common misconception.
If you collected unemployment benefits, the IRS still considers it taxable income, Flores explains.
If you were unemployed for all or part of 2016, youll receive a Form 1099-G that spells out how much unemployment you need to report on your tax return. What you owe will depend on whether you opted to have taxes withheld from your unemployment benefits.
Most people choose to receive their full unemployment benefits upfront, which makes sense: when youre out of work, you need the moneyespecially if youve depleted your savings. However, if you opted to have taxes withheld, it could offset what you owe, or you could qualify for a tax refund, says Albert.
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Tax Deductions And Credits When Youre Unemployed
You may be required to file a tax return when youre unemployed, depending on your situation and doing so can have benefits. If youre eligible for any refundable tax credits, the only way to get them is to file a tax return. And itemizing deductions may allow you to recoup certain expenses incurred while you were unemployed.
Take Advantage Of These Tax Breaks Using Turbotax
If you lost your job during the past year, TurboTax can help you make sure you get the deductions and credits you deserve. Well ask simple questions about your situation and guide you to the credits and deductions that will put the most money back in your pocket.
TurboTax is here to help with our Unemployment Benefits Center. Learn more about unemployment benefits, insurance, eligibility and get your tax and financial questions answered.
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Take Out A Personal Loan
Another option to consider if you cannot pay your taxes in full is a personal loan. You may be able to borrow money from family or friends to pay your tax bill.
Many family members and friends may be wary to lend money to you. This has nothing to do with them not trusting you or concerns about your character, but rather a fear of damaging your relationship with them. One option is to consider collateral for that loan. You give them an item of value to hold. If you repay the loan in the timeframe that you promised, they give the item back to you otherwise, they keep the item.
Start Saving As Soon As Possible
If the bill isnt too big, you may be able to simply save up enough money between now and the April 15 due date to pay the bill by then. The most efficient way of doing this is to set up a savings plan for yourself where you automatically put aside a small amount each week from your checking to your savings account.
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Victims Of Unemployment Fraud
Whenever the government starts sending checks, criminals will try to get their hands on some of that money. That’s certainly the case with the unemployment compensation tax refunds. The good news is that you won’t be punished if a crook uses your name and personal information to steal a tax refund from Uncle Sam.
So, for example, if you received an incorrect Form 1099-G for unemployment benefits that you didn’t receive, the IRS won’t adjust your tax return to add the unemployment compensation to your taxable income. You should still report the fraud to the state workforce agency that issued the incorrect form, though.
Income Taxes Vs Fica Taxes
Unemployment compensation is not subject to FICA taxes, the flat-percentage Social Security and Medicare taxes that would normally be withheld from your paycheck if you were working.
You’ll still pay significantly less in FICA taxes than you would have had you been working if you collected unemployment through a significant part of the year.
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What To Do If You Owe Taxes On Unemployment Benefits
After going through these steps, you may find that you owe taxes to the IRS. If you do, dont panic. You have options.
However, not paying that tax bill is not one of those options. When facing a tax bill, it may be tempting to just not pay it at all. That would be a big financial mistake.
You should make every effort to pay as much of your tax bill as possible. Not paying your tax bill means that youll immediately face additional penalties for late payment, as well as interest that accrues on your unpaid taxes. If you continue to not file your taxes, the IRS may seek legal remedy against you.
You Could Get A Hefty Tax Refund This Year
On the other hand, if youve been having income tax withheld from your pay for a substantial portion of the year already, you may be way ahead on paying taxes for this year.
In a progressive tax system, such as we have in the U.S., higher levels of income are taxed at much higher rates.
When your employer takes taxes out of your paycheck, the payroll department calculates your income tax withholding as if you will earn the same amount all year.
When you get laid off and make far less over the year, you may get a large portion or all of your income tax withheld back as an unemployment tax refund.
You cant get that over-withheld income tax back until after the end of the year. However, you may be able to make adjustments to minimize your over-withholding, giving you more money to live on now.
Unemployed College Student Do I Need To File
Yes, you have to file a tax return to get the stimulus.
“In essence, the 2 stimulus checks act as an advance of your 2020 income tax refund. This means when you prepare your 2020 income tax return, there will be a line to include the section 6428 credit . The credit on your 2020 return is subtracted by any amount received as a stimulus check in 2020. If the amount you received as a stimulus check is less than the credit you are due, the difference will be included as part of your 2020 refund. If you have been overpaid by receiving the stimulus check, however, you will not be required to return any excess amount”.
Under the CARES Act, if you are claimed, or qualify to be claimed, as a dependent on someone elses 2019 return you cannot receive a stimulus check, in 2020. If you qualified as a dependent for 2019, but will not be for 2020, you will most likely get it in 2021, when you file a 2020 tax return.
If you have no income, you have to mail in a paper tax return. Some people advise that you report $1 of interest income, so that you can e-file.
Should I Just Submit For An Extension On Filing My Taxes
Spivey said she anticipates “a significant number of people that will not do this year, and then get charged penalties and interest.” Sometimes people then experience a “snowball effect,” she said. “They don’t do one year and then it causes anxiety, and then they just don’t do them for a couple of years.”
Spivey strongly encouraged people to file their taxes to avoid getting sucked into this cycle. If you need more time, submitting for an extension via a Form 4868 will buy you until Oct. 15 to file your tax return.
If you’re anticipating needing help to file, remember that filing after the official deadline will mean that many of the free and low-cost options for tax prep that would have been available before that date are no longer available. And speaking of tax help …
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You May Be Able To Deduct Job
Job-hunting expenses are deductible as miscellaneous deductions on your tax return. Youll need to have substantial job-hunting or other miscellaneous deductions before they actually reduce your income tax bill.
You can only deduct your total miscellaneous deductions to the extent that they exceed 2% of your adjusted gross income.
However, if your income is much lower this year, you may reach that amount more quickly than you expect.
Keep track of your job-hunting expenses, such as transportation to interviews , subscriptions to online job search services, admission to job fairs, and resume consultations.
Who Qualifies For This Tax Refund
The pandemic relief package , which was signed into law on March 11, allows taxpayers who earned less than $150,000 in modified adjusted gross income to exclude unemployment compensation they received last year up to $10,200or up to $20,400, if married and filing jointly. That means eligible taxpayers would only pay taxes on the unemployment compensation received above those amounts.
On Wednesday, the Internal Revenue Service announced that it will automatically refund money this spring and summer to any taxpayer who filed tax returns that reported unemployment compensation before those recent changes went into effect. For those taxpayers who have already filed their returns, and who figured their tax based on the full amount of unemployment compensation, the IRS said it will determine the correct taxable amount of unemployment compensation and taxes owed. Any resulting overpayment of tax will be either refunded or applied to other outstanding taxes owed.
Withholding From Unemployment Compensation
Again, the $10,200 exemption only applies to unemployment compensation received in 2020. So, to avoid a big tax bill when you file your 2021 return next year, consider having taxes withheld from any unemployment payments you receive this year.
Contact your state unemployment office to have federal income taxes withheld from your unemployment benefits. You may be able to use Form W-4V to voluntarily have federal income taxes withheld from your payments. However, check with your state to see if it has its own form. If so, use the state form instead.
If You Cant Pay Your Taxes On Time
If you do end up owing the government money and cant pay your taxes on time, the IRS offers several payment plan options that can help you.
But be aware that not paying the full amount you owe by the filing deadline will mean youll pay interest and possibly penalties on the unpaid amount even if you arrange a payment plan with the IRS.
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Qualifying For Job Search Tax Deductions
To qualify for the deduction, your job search must be for a job in your current, or most recent, trade or business.
- If you havent held a job in that trade or business for an extended length of time, your job search will be considered for a new trade or business, and your deductions may not be allowed.
- If youre just out of school and had no paying jobs while in school that were related to your trade or business, your deductions wont be allowed.
Do You Owe Taxes On Unemployment Benefits
Yes, unemployment checks are taxable income. If you received unemployment benefits in 2020, it counts as part of your income, and thus you will owe income taxes on that amount. Your benefits may even raise you into a higher income tax bracket, though you shouldnt worry too much about getting into a higher tax bracket.
Some workers received additional unemployment benefits in 2020 due to provisions in federal and state laws as a result of the coronavirus pandemic. Those additional benefits are also taxable income. If you received extra unemployment in 2020, it also counts as part of your income, and you will owe income taxes on that, too.
People who file for unemployment have the option to have income taxes withheld from their unemployment checks, and many do. If you elected to do this, you have little to worry about.
What if you didnt elect to have income taxes withheld from your unemployment checks? Dont panic. Although youll see a higher tax bill this year, if you were employed during much of the year, you may simply see a reduced tax return or a very small tax bill when you file.
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Filing Taxes While Unemployed
You still need to file your taxes even if you were unemployed for the entire year. It will indicate to the IRS whether or not you received unemployment benefits, as well as if you wish to claim any tax credits or deductions.
The good news is you have multiple options for how you file your taxes and pay for tax liability.
Taxpayers may decide to have the taxes owed withheld from upcoming unemployment compensation, or unemployed individuals may decide to pay estimated quarterly taxes to avoid a bigger lump sum at the end of the year.
You should make yourself aware of whether or not paying estimated quarterly taxes makes the most sense for you. Unfortunately, the IRS does penalize taxpayers who underpay throughout the year if they wait until April for the lump sum, which many unemployed individuals cannot afford.
When Is The Deadline For 2020 Tax Filing
Don’t count on a deadline extension just yet. The IRS said April 15 will be the deadline for filing 2020 tax returns, while October 15 will be the deadline to file for an extension.
Generally, tax refunds for electronically filed returns are issued within three weeks, while paper filing can take longe
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Your Tax Responsibilities When Youre Unemployed
When youre out of work, unemployment benefits can help keep you going financially hopefully until you can find another job.
Unemployment benefits can come from multiple sources, including the following:
- The Federal Unemployment Trust Fund
- State unemployment insurance
- A company-financed fund
- A private fund to which you voluntarily contributed
Generally, unemployment income is taxable as income at the federal level and may be at the state level, too, depending on where you live. But if you receive unemployment benefits from a private fund that you voluntarily contribute to, its only federally taxable if the benefits you receive exceed the amount you paid into the fund.
In addition to paying tax on unemployment benefits, if you worked part of the year before losing your job, you may also be responsible for paying federal income tax on those wages, as well.
Typically, employers withhold federal and state taxes from wages, based on how much you earned and information you provided on your W-4 form. Whether you owe any additional tax on those wages will depend on the selection you made on your W-4 form and whether your former employer withheld enough federal income tax from your paycheck. If they took out too little, you could owe taxes on that income when you file your returns.