A Guide to Understanding How TCJA Affects Taxes for Independent Contractors
Due to the recent passage of the Tax Cuts and Jobs Act by the Trump administration, there will be an impact on the taxes for independent contractors. In the United States, there are more than 57 million freelancers and estimates show that more than 50 percent of the American workforce by 2027 is going to be made up of freelancers. There will be an acceleration of the freelance positions which are already on the rise after the passage of the TCJA. By reading this article, you’ll learn more about how the Tax Cuts and Job Act affects freelancers.
The effect of TCJA on each income bracket is that it lowers the tax rates. You will therefore have less money taken from you by the tax authorities due to the TCJA. For example, a person who was earning $100,000 had a tax rate of 28% but now it is going to be 24%. Also, the TCJA helps freelancers to deduct more from their taxable income. When the taxable income is reduced, the lower tax rates will be applied and results to a tax benefit to independent contractors. For example, if a freelancer was earning about $45,000 every year, with the recent changes in the tax code, this freelancer may save up to $1000 annually.
TCJA is going to be of benefit to many different people. In most cases, freelancers or independent contractors are not recognized as official workers of a business. Since freelancers are independent, they do not conform to the old relationship between a boss and employee. Freelancers operates in terms of a contractual agreement with the clients that want to be helped in executing a certain service. In the past, most of the freelancers were mainly composed of journalists and photographers. In addition, the independent contractors were mainly in the service industry doing blue-collar jobs such as carpentry and plumbing. After the introduction of gig workers, there has been a shift in the freelance community since work is accepted through mobile apps. This is proving to be a common way of hiring independent workers because it reduces the company’s overhead and it is easy to assign work. Between 15 and 2020, it is estimated that the number of gig workers is going to double due to the rapid increase in the number of gig workers. This industry therefore is going to experience a growth due to the changes in taxes for the independent contractors. Be sure to check out this page if you want to find out more information about the impact of Tax Cuts and Job Act on independent workers.