Filing taxes

Freelancer Tax: What Happens if I’m Behind?

written by Robin T Young
reviewed by Claudia Grant
September 21, 2023

Freelancer Tax: What Happens if I’m Behind?

If you’re a freelancer who’s behind on your taxes, keep reading. Here you can get freelancer tax advice on what to do if you haven’t been paying.

As of 2022, there are 70.4 million freelancers in the US. When you consider the benefits (such as no bosses, flexible hours, and working from home), there’s no wonder why so many Americans have given up their 9-to-5 jobs in favor of freelancing.

What some fail to realize is that you still have to pay taxes on your earnings. While employers automatically withhold amounts from your paychecks, freelancers need to report and pay taxes on their own.

If you’re behind on freelancer tax, then you may be worried. Defiantly don’t run into the mistake of failing to file your tax returns. Read on to see what may happen, what you need to do, and more.

What Taxes Do You Have to Pay?

First of all, what taxes do you even have to pay as a freelancer?

Well, if you’re not a W-2 employee (which most, if not all, freelancers aren’t), then you’ll have to pay quarterly tax if you’re projected to owe over $1,000 to the IRS ($500 if you’re a corporation and not an individual freelancer); these are estimated taxes on your income. If you’re used to the yearly tax deadline in mid-April, then this might come as a shock to you.

That’s not all either.

If you earn over $400 in a year from any client, then you’ll need to pay a 15.3% self-employment tax. This is to make up for the Social Security and Medicare taxes you and your employer would pay in a traditional workplace.

Lastly, if you make over $600 from any client, you’ll receive a 1099-MISC form from them. You’ll have to put this form on your tax return as a Schedule C attachment.

When Do You Pay Your Taxes?

Your quarterly estimated tax payments are due every three months. In general, the dates are April 15, June 15, September 15, and January 15 (of the next year).

The self-employment tax is usually due in mid-April.

Your clients must send you a copy of your 1099-MISC by the end of January. Then, the due date is the end of February for paper filing and the end of March for electronic filing.

What if I’m Behind on Tax Obligations?

If you’re even a day late in paying your quarterly taxes, then you’ll have to pay a penalty. The longer you wait, the bigger the penalty will be, so it’s best if you always pay on time.

If you file your income tax late, then the good news is, there’s no penalty if the IRS owes you money. However, if you expect to get a tax refund, then don’t make sure to file your taxes every year. You won’t get your refunds and tax credits if you haven’t filed for over three years.

For those who don’t file and pay taxes by April 15, then penalties and interest start accruing.

In regards to failure to file (FTF), the IRS will charge you 5% per month, with a maximum of 25% (five months). In addition, you’ll have a fine of at least $210 if you file over 60 days late; if 100% of the taxes you owe is over $210, then this is the amount you’ll pay in fines.

You’ll also pay 0.5% per month for failure to pay (FTP) taxes, with a maximum of 25%.

Should you need to pay both penalties in any month, the IRS will subtract the FTP from the % FTF fine.

Lastly, the IRS will charge you an interest rate of around 3%.

More Consequences

Being behind on freelancer tax has more consequences than just penalty charges and interest.

If you owe the IRS over $50,000, the State Department can revoke your passport. Plus, while you usually have three to six years as the statute of limitations for an IRS audit, this won’t apply if you’ve failed to file.

In addition, it’ll be near impossible to get approval for loans if you don’t file your taxes. Lenders will want to see your prior tax returns to ensure you’re responsible with your money.

Most importantly, the IRS can file a substitute tax return for you. While this might sound nice, the reality is, they have no motivation to credit you for deductions.

Fortunately, the IRS will allow you to file on your own, even if they’ve done a substitute return on your behalf. Respond to their letter promptly; you may be hit with a tax lien if you don’t.

On the rare occasion that you’re prosecuted for a misdemeanor because you haven’t paid taxes, you face a maximum of one year in jail and $25,000 for each year you haven’t paid. But if you voluntarily reach out to the IRS first, you shouldn’t worry about these things.

What to Do

Unfortunately, you can’t plead ignorance and hope to get out of penalties, interest, and taxes. However, the IRS is known to be lenient sometimes, you you may be able to plead your case.

For example, some life hardships can result in a reduction in penalties. These include mental illnesses, addictions, the death of a loved one, or even bad advice from your tax accountant.

You can always try the penalty relief if it’s your first tax penalty too.

Otherwise, you’ll want to catch up with your freelance tax ASAP. It can be beneficial to hire a tax professional on a long-term basis so you don’t run into any more freelance tax issues.

Keep Up With Your Freelancer Tax Obligations

Hearing about freelancer tax obligations for the first time can send you into a panic. But even if you haven’t been filing or paying, it shouldn’t be a huge cause for concern, especially if you’re proactive about setting things right.

The best next actions are to contact a tax account and discuss your situation. They can then use their knowledge and expertise to help you get caught up in a timely fashion.

Do you need a professional to assist with your situation? Then contact our tax relief experts today.

Robin T Young

Robin T. Young, a seasoned tax expert with an unwavering commitment to financial clarity, possesses a profound academic foundation. With a Bachelor of Administration in her arsenal, Robin's intellectual capability lays a solid groundwork. As an Enrolled Agent with the IRS, her credentials mirror her dedication to upholding the highest standards of tax expertise. For over two decades, Robin has thrived as a Tax Resolution Specialist, navigating the complex terrains of tax challenges with finesse. Her wealth of experience stands as a testament to her mastery. Her unwavering dedication to securing favorable outcomes for her clients has earned her widespread respect. Robin's career embodies the harmony between knowledge and empathy, making her an invaluable asset in the realm of tax resolution.
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