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. You’ll find that freelance positions are increasing with time and now with TCJA, the growth of freelance positions is going to be accelerated. This article is going to provide you with more information about how freelance workers are impacted by the Tax Cuts and Job Act.
With TCJA, you’re going to enjoy lower tax rates in each income bracket. With the TCJA, you will realize that you will pay less money to the tax authorities. For instance, you will pay a 24% tax rate if you earn $100,000 today which was previously 28%. In addition to the lower rates, TCJA also provides freelancers with an opportunity to reduce their taxable income. If the taxable income of independent contractors is deducted, lower tax rates are going to be applied which will provide benefits to them. You’ll find that for example if an independent contractor was earning about $45,000 each year, the changes in the tax code will help them to save up to $1000.
There are many groups of people that are going to benefit from the TCJA. You will find that the freelancers or independent contractors are not official workers for business. Since freelancers are independent, they do not conform to the old relationship between a boss and employee. Freelancers only enter into a contractual relationship with customers who are looking to fill a service need. In the past, most of the freelancers were mainly composed of journalists and photographers. The independent contractors were also mostly in the service industry undertaking blue-collar jobs which include 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. Due to the ease in which you can assign work and the reduction of the overheads incurred by the company, many companies are using this way to hire independent workers. The number of gig workers has been rapidly increasing and we will have a doubling of the number of gig workers from 2015 to 2020. In a nutshell, the changes to the taxes for the independent contractors is going to accelerate the growth in this industry. To read more interesting articles about the effects of Tax Cuts and Job Act on independent workers, ensure that you visit this website.