Definition of a Freelance Worker
A freelance worker is defined by the Internal Revenue Service (IRS) as a person who engages in a business activity as a sole proprietor or independent contractor. The income typically comes directly from the business or freelance work rather than a salary or commission-based compensation.
Definition of an Employee
When you are employed by a company, you are considered an employee. Employees are included on the company’s payroll, and federal, state, Social Security, and Medicare taxes are withheld by the employer.
Self-Employment Taxes
If you are working as a freelance worker, you are responsible for paying your taxes to the Internal Revenue Service (IRS) and to your state tax agency. Even if you owe no income tax, you must complete Form 1040 and Schedule SE to pay the self-employment Social Security tax.
Unemployment Insurance Benefits
Independent contractors frequently do not qualify for employee benefits, even those that are legally mandated such as unemployment benefits and workers’ compensation, because they are not employees of a company.
Health Insurance and Other Benefits
Freelancers and independent contractors may be able to purchase health insurance and other benefits through the individual health insurance marketplace or through organizations like the Chamber of Commerce or other groups that provide benefits to freelancers and small businesses.
Advantages and Disadvantages
While there are many positive aspects to working as a freelance worker, such as setting your own hours (full-time or part-time), minimizing or completely avoiding commute time, focusing on professional goals that matter most to you, the ability to work remotely, and taking advantage of tax deductions, one downside is that benefits typically included in salaried jobs must be paid out of pocket.
Frequently Asked Questions (FAQs)
Can an employer dictate my work schedule if I am an independent contractor?
Independent contractors are considered freelance workers, and they usually set their own hours and are paid a flat rate or based on work completed.
Can I receive unemployment benefits if I am a freelance worker and out of work?
Freelancers and independent contractors who lose their income often do not qualify for unemployment benefits. If you are unsure of your eligibility, check the guidelines of your state’s unemployment agency.
Thank you for reviewing this article. We hope you found the information about the differences between employees and freelance workers helpful in understanding their impacts on taxes, unemployment, health insurance, and other benefits.
Source: https://www.thebalancemoney.com/differences-between-employed-vs-self-employed-2062139
Leave a Reply