Discover how you can work legally in the USA so that you can grow your career or business. As a freelancer in the USA, you will be in charge of filing and paying your taxes, planning your personal finances, and managing your cash flow.
According to a 2020 survey by Upwork, the US has a freelance workforce of about 59 million. Collectively, they contribute about $1.2 trillion to the American economy.
- Working Legally as a Freelancer in the USA
- Freelancers in California
- Freelancers in New York City
- Dealing with Taxes in the USA as a Freelancer
- Filing Taxes on Freelance Income in the USA
- Deductible Freelance Business Expenses
- When to Pay Your Freelance Taxes
- Freelance Work Permits in the USA
- Essential Freelance Business Tools
- Freelancers vs. Employees in the USA
- How to Tell If You are a Freelancer
- Do Employee Laws Apply on Freelancers?
- Intellectual Property Protection For Freelancers
- How to Register as a Freelancer in USA
- How to Legally Start a Freelance Business in the USA
- Do I Need LLC for Freelance Work
- Can I Do Freelance Work on H1B Visa
- Can I Do Freelance Work While Employed
- Conclusion – Work Legally as a Freelancer in the USA
Working Legally as a Freelancer in the USA
You are a freelancer if you work as an independent contractor, gig worker, contract worker, or even a subcontractor. The law considers you a small business owner, instead of an employee.
In that regard, the laws that govern employees’ terms of employment do not apply to you. You can work with multiple clients, and the clients have no obligation to pay you employee benefits.
The exception is where the state or local law clearly states that you have to be treated as an employee. For instance, local and state laws in California, and New York City, have placed certain conditions for employers who hire freelancers.
Let us look briefly about how freelancing is different there when compared to other locations in the US.
Freelancers in California
According to California’s AB5 law, a client has to treat a freelancer as an employee, once they receive more than 30 submissions of work. California enacted the AB 5 employment law in September 2019 and came into effect on January 1, 2020.
Most media and technology companies receive hundreds of submissions from freelancers monthly. This is why the affected employers are no longer taking freelancers based in California. For CA freelancers, that means lost work opportunities.
However, the AB5 law exempts those who hire freelance doctors, architects, lawyers, insurance agents, real estate agents, grant writers, tutors, manicurists, and truck drivers.
Freelancers in New York City
If you freelance from New York, then your business is under the Freelance Isn’t Free Act, which came into force on May 15, 2017. The Act states that all contracts valued at $800 and above are in writing.
Furthermore, it requires employers to pay the full amount on the date specified on the contract. Alternatively, they must make payments within 30 days after service delivery, if the contract does not specify a date.
Employers risk exposure to liabilities such as fines for late payment, attorneys’ fees, and statutory damages. Overall, the act aims to protect freelancers from exploitation, and ensure taxes freelancers pay their taxes on time.
Dealing with Taxes in the USA as a Freelancer
As a freelancer, the IRS expects you to pay your taxes as businesses do. You will have to pay self-employment tax, as well as make some deductions on your taxes, where applicable.
Report All Your Income
You need to report all your income to the IRS, even if you think you do not have any tax obligation for that source. As a freelancer, you will have many sources of income, which can be from local clients or from overseas.
Therefore, it is easy to lose track of your earnings, if you selectively report them. As a freelancer, instead of getting the W-2 form for reporting your taxes, you will get multiple 1099-MISC from your clients.
Tax Identification Number
Moreover, the IRS requires that everybody who is working in the USA pay their taxes, even if they are illegal immigrants. To do that, you need to apply for and get your IRS tax identification number.
The IRS will not ask about your immigration status but will want to know your physical address and contacts. They use them to contact you in case there is an issue with your taxes.
Filing Taxes on Freelance Income in the USA
According to the IRS, once you receive your 1099-MISC, as an independent contractor or freelancer, you will need to fill three forms. The type of form to fill will depend on when you plan to pay your taxes, and whether your earnings are $600 or more.
Schedule C (Form 1040 or 1040-SR)
You use the Schedule C (Form 1040 or 1040-SR) form to report your income as an independent contractor or freelancer.
Schedule SE (Form 1040 or 1040-SR)
You also need to file Schedule SE (Form 1040 or 1040-SR), if your earnings are $400 or more. The form also helps you to determine how much social security and Medicare tax you need to pay on your income.
Form 1040-ES
You need to file an estimated tax income using Form 1040-ES if your income is not subject to withholding. This includes freelancing, dividends, rents, alimony, interest, etc.
Form 2210
Once you have not made timely estimated tax payments, then you also need to fill Form 2210. The form helps you to see if you have unpaid taxes and penalties, and the total amount you owe the IRS.
Why Pay Your Freelance Taxes
Paying your taxes will ensure you work freely, legally, and grow your freelance business successfully. It will also help you to keep an eye on your freelance income and charge better rates.
Deductible Freelance Business Expenses
When paying your taxes, you can deduct any necessary expenses that you incur while running your freelance business. However, these expenses must be essential to running your freelance business. These include:
- Business-related food
- Lodging
- Office expenses
- License fees
- Education/certification expenses
Items that you would own or pay for even without being a freelancer do not qualify as deductibles. For instance, you can deduct the cost of using your home office, if you only use the space/room for your freelance work.
However, if space also doubles up as a family study room, then you cannot write it off as a freelance expense. You also cannot deduct your internet bill, if you also use it for home entertainment as well.
Other non-deductibles include education expenses in fields, which are not in your profession or line of freelance business.
When to Pay Your Freelance Taxes
Freelancers and small businesses are required to pay their taxes 4-5 times annually. This requirement applies to a freelancer in the US, who is a sole proprietor, or a sole owner of a limited liability company (LLC).
As a freelancer in the US, you must file and pay your taxes by mid-April. You then have to make quarterly payments by mid-June, mid-September, and mid-January. You do not need to fill any forms when making quarterly payments.
If as a freelancer you have registered a corporation or LLC with multiple owners, you have to file your taxes twice. You have to file for yourself as an individual, and then for your corporation/LLC, separately.
Freelance Work Permits in the USA
While freelancers can work from outside the USA, they need to get an employment-based immigrant visa to work on US soil. You can check this page for details on how to immigrate and work in the USA.
There are no specific visas for freelance workers and non-freelance workers.
Essential Freelance Business Tools
Apart from working obtaining a work permit, international freelancers will need to have the following:
- Bank Account
- Tax Identification Number (TIN)
- Business Address
Most US clients/businesses prefer to work with freelancers who have a US bank account, TIN, and physical address. That makes filing their taxes easier, and they do not have to justify why they hired you to their local or federal authorities.
The exception is when they work with you on outsourcing platforms such as Upwork, Guru, or Freelancer. The platforms have the required licenses that allow them to facilitate work transactions between freelancers and US clients.
Freelancers vs. Employees in the USA
From a legal perspective, there are two types of workers in the United States; employees and freelancers. Today, most people prefer working as freelancers instead of traditional employment for a plethora of reasons.
However, neither the companies nor the workers decide who freelancers and employees are- the law does. Here, we learn about how you can tell if you are a freelancer and how you can protect your intellectual property.
How to Tell If You are a Freelancer
Determining whether you are a freelancer can sometimes be complex and may take the intervention of an employment lawyer, if unsure. There have been cases where employers have misclassified (whether intentionally or otherwise) employees to avoid paying taxes and other benefits.
To qualify as an independent contractor, you must meet the set standards (depending on the state where you reside). The regulations vary from one state to another, with some relatively higher standards. California, for instance, has the ABC test, which states that you can only qualify to be a freelancer if:
- You do not have control of the hiring company
- You can work outside your ordinary course of business of the hiring organization
- You have an independent occupation, business, or any other established trade
Apart from California, three other states use the ABC test to determine whether an individual is a freelancer or not. These states include Massachusetts, Vermont, and New Jersey.
Do Employee Laws Apply on Freelancers?
No, they do not. Freelancers working in the United States are treated as “small business owners,” so business laws apply. However, a freelancer can be “misclassified,” meaning employee laws will apply in rare cases.
For states or cities such as New York City, there can be slight exceptions. For example, freelancers in the region have protection from employment discrimination and gender-based violence, similar to what regular employees enjoy. The same applies to freelancers in California.
Intellectual Property Protection For Freelancers
As a freelancer, just like any other business, you need to protect your intellectual property legally. Intellectual property refers to the rights of use or ownership of any creation. Copyright, trade secret, patent, and trademark are the four major categories of intellectual property.
Protecting ideas remains to be one of the hardest things to govern. For instance, you can acquire copyright for a book or article you write, but it is almost impossible to protect people from using the ideas you have published. However, with intellectual property protection, you can at least protect some of your information.
Here are some common types of freelancers’ intellectual work and how you can protect them:
- visual art
Visual art creations such as graphic designs, street art, movies/ videos, photography, architecture, sculpture, and paintings can be protected using copyright or trademark (especially for business logos).
- Writing
For articles and books, you can use copyright to protect your original work. For your fictional characters, you can sometimes use a trademark.
- Software
Actual codes need copyright and patent, while the name of software needs a trademark.
- Website and blogs
Website content needs copyright, while your website’s name requires a trademark.
- Music
Copyright your songs, trademark your brand name.
- Inventions
All your inventions need to be patented.
- Business plans and charts
Copyright and trade secrets can be of help on this front.
- Furniture
You can copyright your patterns together with the design element that makes your furniture stand out. Patent any new functionality of your furniture.
- Fashion
Trademarks, patents, and copyrights can be used where appropriate. Unfortunately, there is no protection method for generic forms or styles such as cut, neck openings, and sleeve lengths.
- Comedy
Jokes and memes are probably not protectable at the moment.
How to Register as a Freelancer in USA
As a freelancer in America, you do not need to register to get started. You also do not require a business to operate. The only requirement you need to fulfill is to pay taxes if your income reaches $400. However, if you insist on registering as a freelancer, you will have to operate under the name of a business.
Do Freelancers Have to Register as a Business
In general, a freelancer can continue to run their freelance business with their names without needing to make any legal registration. Freelancers that choose to operate under the name of a business are required to register the entity. However, the name of a freelancer can operate as a legal sole proprietorship business. This information is enough when completing tax documents such as form W-9 and form 1099-MISC.
How to Legally Start a Freelance Business in the USA
In the United States, registering your freelance business usually depends on the location. To start this process, you will need to access the state or local government portal for business registration. From the website, you will need to get your company tax ID and license for operation. Once you have this information, you will be able to file taxes with these details. You will also be able to employ and pay workers under your business.
For people looking to start a freelance business in other locations around the world, the process is generally similar. However, the procedure may vary, especially within Europe.
Do I Need LLC for Freelance Work
LLC stands for limited liability company. As a freelancer, you should consider opening an LLC if you want to improve the scope of your business. In general, expanding your business into a limited liability company is easy. It also gives you several advantages you will not get when operating as an individual or sole proprietor. Additionally, there are several advantages to consider for converting your business into an LLC. Some of these advantages include the following.
- It protects your personal belongings in case of a financial mishap.
- It gives you flexibility with taxes.
- It makes it easy for you to expand your business by accessing financial credit from commercial banks.
Can I Do Freelance Work on H1B Visa
H1B visa allows employers to employ foreigners based on particular terms and conditions. As such, a holder of an H1B visa cannot work as a freelancer. The only exception is if form I-129 of the visa specifies a person can work either as a freelancer or with other employers. To be eligible for a such work permit, a person must obtain a separate authorization through an H1B petition.
Can I Do Freelance Work While Employed
In most cases, no law prevents a person from working as a freelancer. However, some contractual agreements may require a person to inform their employer. In addition, a contract may prevent a worker from starting a freelance business that competes with their employer.
Conclusion – Work Legally as a Freelancer in the USA
To work as a freelancer in the US legally, you need to be a resident or have an immigrant visa that allows you to work permanently or temporarily in the United States.
However, whether you have the approval to work in the US or not, once you do freelance work on US soil, you must pay taxes on your earnings.
IRS can give you a TIN free, even if you do not meet the legal requirements to work in the US. You can use it to submit your taxes, to avoid tax evasion charges. You may also need to open a US bank account to receive your tax refunds and payments from some businesses.
We hope that you found this guide to be informative, and you will enjoy growing your freelance business.
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