Whatever you do on Fiverr, whether you're a writer, marketer, or freelance consultant, you'll need to file taxes on your earnings. It's your responsibility to report all income and expenses on Schedule C and pay quarterly estimated taxes throughout the year if you're an independent contractor (1099) with Fiverr.
Learn everything you need to know about your tax responsibility as an independent contractor on Fiverr.
Do you need to pay taxes from Fiverr income?
Yes - on Fiverr, your earnings are considered self-employment income. A Fiverr recipient's earnings are taxable.
In order for you to file your tax return, you must report your income regardless of how much it is. However, you will not owe self-employment tax until your net income reaches $400.
Fiverr does not issue tax documents unless you earn more than $20,000 or use the platform 200 times. Your clients don't need to file 1099s either. All other sites that are considered Payment Settlement Entities are subject to the same rules.
At the end of the year, print out your income and fees (which are tax-deductible) from your gig platforms.
Does Fiverr Take Out Taxes for You?
It's essential to know that Fiverr doesn't withhold taxes on your payments. You are solely responsible for paying your taxes to the Internal Revenue Service.
In cases where Fiverr is required to do so, it will send a 1099 form to the relevant tax authorities at the end of the year. Sellers in the United States who earned at least $20,000 in that year and received at least 200 separate orders are eligible for this.
Fiverr does not withhold any money from your earnings or what you are paid, so you will have to pay taxes on all of your income.
What taxes are due for Fiverr Income?
You are responsible for these types of taxes as a Fiverr seller.
- Federal and State income taxes - Tax rates vary depending on your federal and state tax brackets, which vary based on your income. Federal income taxes range from 10% to 37%, while state income taxes can range from 0% to 13.3%.
- Self-employment taxes, also known as FICA taxes - FICA stands for Federal Insurance Contributions Act, which includes Medicare and Social Security. Medicare taxes are 1.45% and Social Security is 6.2%, totaling 7.65%.
Both the employee and the employer are responsible for paying this portion of self-employment income taxes. Workers on Fiverr are classified as independent contractors by the IRS. As a freelancer, you are both the business and employee, so you will pay a total of 15.5%. However, you may be able to deduct the employer portion of FICA taxes as a business expense.
1099s You'll Receive As A Fiverr Contractor
As a Fiverr independent contractor, you will generally need to deal with two forms. These must be sent out by January 31. Here we will review the two forms, 1099-NEC and 1099-K, and their requirements.
Freelancers receive the 1099-NEC form, which is the most common 1099 form. A business must issue this 1099 form to you if you earned more than $600 for your gigs. In 2020, this form will replace the 1099-MISC for non-employee compensation. Consequently, you will receive a 1099-NEC. A 1099 must only be issued if a business pays a payee more than $600. As a result, you may not receive a 1099 if you earned less than $600, but you may still have to pay taxes.
As a Fiverr freelancer, you'll also receive the 1099-K form. When you make more than $20,000 and have 200+ transactions or when you receive payments from a third-party processor like PayPal, the form 1099-K is distributed. The requirements may vary by state.
What If You Don't Receive A Tax Form?
If you did not receive a 1099 in the mail, make sure you met the requirements.
Verify your reported payments by logging into your Fiverr account. If you are aware that you met the requirements to receive a 1099, but did not receive one, contact PayPal or Fiverr immediately. Check your Fiverr earnings by going to the "earnings" tab on your dashboard.
It is also possible that you did not receive a form if your account has the wrong address. Make sure all the information on your account is accurate.
When are Fiverr taxes due?
You will need to pay estimated quarterly taxes if you expect to owe the IRS $1,000 or more at the end of the year.
Estimated quarterly taxes are due on:
- Q1: April 15th
- Q2: June 15th
- Q3: September 15th
- Q4: January 15th
In the event you don't pay enough in quarterly taxes, you could owe up to 25% in underpayment penalties. To avoid this problem, make sure you understand how much estimated taxes you need to pay.
Helpful Resource: What are estimated taxes? - Guide
Unfortunately, taxpayers cannot deduct business expenses when they pay quarterly taxes. You have to wait until you file your annual taxes between January and April.
In order to avoid paying too much in taxes, it is important to organize your expenses well before the tax year's due date.
Tax Deductions Available to Fiverr Freelancers
Tax deductions are one of the benefits of owning a business. When you file your tax return, keeping track of your receipts will help you avoid paying Uncle Sam as much as possible.
Common Business Expenses To Claim
The following are some common tax deductions freelancers on Fiverr can claim.
- the cost of software and apps
- legal fees for business structure
- claim the home office deduction
- office supplies
- tax preparation costs
- education/ training expenses related to your industry
- Internet bills
- the business-specific portion of your cell phone bill
It can be difficult to prepare your own tax return as a sole proprietor, small business owner, or freelancer. Maintaining paperwork is a hassle and filing your taxes can take a long time. Using a professional accountant or tax preparer is the best way to file your taxes.
How much to set aside for Fiverr taxes
According to most tax professionals, you should set aside 30% of your Fiverr income for taxes. The extra taxes you may have to pay Fiverr at the end of the year can be covered by this.
You may also need to pay estimated quarterly taxes, so it's important to set aside money.
If you expect to owe more than $1,000 in taxes at the end of the year as a 1099 worker, you must make quarterly payments toward that debt. Your quarterly tax payments are based on an estimate of how much you will owe in April.
You'll need to pay taxes owed for the past year in quarterly payments. The IRS might charge you a penalty if you fail to pay your estimated taxes on time. Calculate your quarterly tax payments by taking 30 percent of last year's income or your anticipated income for this year, and dividing it by four.
Self-employment tax is 15.3%. It is made up of 2.9% for Medicare or hospital insurance, and 12.4% for survivors, old-age, and disability insurance.
It is therefore recommended that you place 30% of the money each time you receive a payment into a short-term savings account.
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