Freelancing

What It Means

Freelancing is working for yourself and selling your skills to a range of clients, usually by the project or by the hour, instead of holding a long-term job with one employer. Merriam-Webster defines a freelance as someone who pursues a profession without a long-term commitment to any one employer. Writers, designers, developers, translators, photographers and consultants often work this way, and for tax purposes most freelancers are self-employed.

How People Say It at Work

• "I left my agency job to freelance."
• "I've got three freelance clients this month."
• "Freelancing is great until tax season."

The Breakdown

Formula

Hourly rate = (pay you want + business costs) ÷ billable hours in a year

Worked example. Dana, a freelance designer, wants $50,000 before tax for the year and expects $6,000 in costs for software, a computer and insurance. She plans on 25 billable hours a week, since the rest goes to pitching, invoicing and admin, and 46 working weeks.

Out of the $50,000, self-employment taxSelf-employment taxThe Social Security and Medicare tax self-employed people pay on their own profit: 15.3% of 92.35% of net earnings, owed once those reach $400 a year. See more at 15.3% of 92.35% takes about $7,065, and income tax comes on top, so her take-home will be well under $50,000.

What moves the number

• Billable hours. Fewer hours a week, or more weeks off, push the rate up.
• Costs you carry yourself, from software to health insuranceHealth insuranceA plan you pay a premium for that covers part of your medical costs, while you pay your own share through a deductible, copays and coinsurance. See more.
• Taxes. Nobody withholds them for you, so the rate has to cover them.

Where It Comes From

Merriam-Webster traces the earliest written evidence of "freelance" to Sir Walter Scott's novel Ivanhoe, where a lord talks about his paid army of "free lances." The word later widened to mean anyone working on their own terms without a long-term commitment to one employer.

Good to Know

The IRS treats freelance income as taxable whether or not a client sends a form. For payments made after December 31, 2025, a client reports what it paid you on Form 1099-NEC1099 contractorAn independent contractor whose pay a business reports on Form 1099-NEC; they're self-employed, so no tax is withheld and they owe self-employment tax. See more once the total reaches $2,000, up from $600 before. Once your net earningsNet incomeWhat's left after everything is taken out: on a paycheck, pay after taxes and deductions; for a business, profit after all expenses and taxes. See more reach $400, you owe self-employment tax, and if you expect to owe $1,000 or more for the year, IRS Form 1040-ESQuarterly estimated taxesTax paid to the IRS in four installments during the year on income with no withholding, such as self-employment profit; due April, June, September and January. See more says to make quarterly estimated payments. Ask a tax professional how this applies to you.

Related Terms and Categories

• Gig work

  Short-term, on-demand jobs or sales, often found through an app or website, such as rides, deliveries, errands or selling goods; the IRS treats the pay as taxable income.

• 1099 contractor

  An independent contractor whose pay a business reports on Form 1099-NEC; they're self-employed, so no tax is withheld and they owe self-employment tax.

• Self-employment tax

  The Social Security and Medicare tax self-employed people pay on their own profit: 15.3% of 92.35% of net earnings, owed once those reach $400 a year.

• Quarterly estimated taxes

  Tax paid to the IRS in four installments during the year on income with no withholding, such as self-employment profit; due April, June, September and January.

• Side hustle

  Paid work done alongside a main job or other commitments, such as freelancing, delivery driving or selling goods; the IRS treats the income as taxable.

• Irregular income budgeting

  Planning spending and saving when your pay changes from month to month, such as freelance, commission or seasonal income, around your lean and average months.

Work, career and remote life