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Normally the employer handles income tax. Employees receive a lower paycheck because taxes have already been taken out, but unless they made a bunch of money fr
by NathanKP 16y ago
Normally the employer handles income tax. Employees receive a lower paycheck because taxes have already been taken out, but unless they made a bunch of money from other sources, their income tax should be very low or even non-existant, such that they get money back from the government.
Freelancers on the other hand have to take taxes out of their income themselves, so what starts out looking like high pay is actually less than it looks. The danger in freelancing is forgetting about taxes and living right up to the extent of your means.
- mgkimsal 16y agoIt's not just that. If that was it, it would just be a case of paying now vs paying later. I'm simplifying here, but there's something called FICA, which is about 15.2% of your pay. Typically employees have 7.6% withheld, and employers chip in the other 7.6%. It's effectively never paid or counted to the employee in the first place. Someone earning 100k at an employer would see $7600 paid in FICA. A self-employed person has to pay $15200 on the same $100k income (but half of that tax is deductible for other tax calculations - it gets convoluted!) So... self-employed people are paying 'more' , but the net effect of what the gov't get is the same. You just don't see some of that money as a typically w2 employee.