A Guide to Understanding How TCJA Affects Taxes for Independent Contractors
Today, the Tax Cuts and Jobs Act by the administration of Trump has taken effect and this is going to impact 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. In this article, you will discover more about how freelancers are affected by the Tax Cuts and Job Act.
The effect of TCJA on each income bracket is that it lowers the tax rates. With the TCJA, you will realize that you will pay less money to the tax authorities. You will for example find that if you were earning $100,000, you will be required to pay tax at the rate of 28% but now you will pay 24%. Apart from the lower rates, TCJA is also going to enable freelancers reduce 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. With the recent changes in the tax code, if a freelancer was earning $45,000 each year, they are going to save up to $1000.
There are many groups of people that are going to benefit from the TCJA. In most cases, freelancers or independent contractors are not recognized as official workers of a business. There is no traditional boss-employee relationship freelancers because they are independent. Freelancers only enter into a contractual relationship with customers who are looking to fill a service need. Long time ago, the freelancers were mostly 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. The number of gig workers is expected to double in 2020 due to the rapid expansion of the gig workers community. 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.