Independent contractor taxes in New Jersey: freelancer tax management guide

If you’re ready to set up as an independent contractor in New Jersey, you’ll know that there are  essential steps and nuances to be aware of, including:

• Paying taxes as a freelancer in New Jersey

• Avoiding misclassification as an employee

• Drafting compliant contracts that safeguard your interests

• Invoicing and collecting payments internationally and across state lines

Today, we'll cover all of the above and the intricacies of independent contractor taxes in New Jersey. This guide will ensure you're well-equipped to navigate the financial landscape, protect you from liability, and allow you to be a freelancer while living in this vibrant state. 

What does it mean to be an independent contractor according to New Jersey law?

According to New Jersey's Unemployment Compensation Law, you are an independent contractor or freelancer if your employment meets the following three conditions, also known as the ABC test:

Absence of control

You work independently of a company's immediate supervision or direction. Effectively, this means someone has hired you to do a task but doesn't get involved in the details of how you do it.

Business or outside location

The service you provide is different from or performed outside a company's usual course of business, creating a clear distinction between the two. For instance, an insurance office hires an independent contractor to shop-vac the carpets. 

Customarily engaged

You're regularly involved in an independently established trade, business, or profession and provide the same type of service for various companies, not just one. 

How do independent contractor taxes work in New Jersey?

In addition to income taxes, independent contractors have to pay self-employment tax. Here's what you need to know about independent contractor taxes in New Jersey: 

Income tax

Freelancers have to pay an income tax, which ranges between 1.4% (for incomes between 0-$20,000) and 10.75% (for incomes of $1,000,000+) in New Jersey. The state also offers tax deductions to help reduce your liability, typically including alimony, medical, and any self-incurred health expenses. 

Self-employment tax rate

New Jersey's self-employed tax rate is 15.3%. This number combines a 12.4% Social Security tax on earnings of up to $147,000 and a 2.9% Medicare tax on all your earnings as an independent contractor. 

What makes you eligible to pay?

The self-employment tax rate applies to freelancers in New Jersey if they:

• Earned more than a net of $400 as an independent contractor

• Received a 1099 form during a contract period of employment

• Had more than $108.28 of income from church employment

What forms will you need to fill out?

You'll need to fill out two sets of forms to pay your independent contractor taxes in New Jersey:

• The 1099-NEC is for all New Jersey workers who qualify as independent contractors.

• The NJ-1040 is the standard individual income tax return form for all New Jersey workers, with independent contractors in the state also required to fill out the Schedule SE and Schedule C sections of this form.

How do independent contractors pay taxes in New Jersey?

If you're new to New Jersey, it's essential to understand the state tax reciprocity agreement, which requires you to pay your taxes in the state you live, regardless of where you're working or delivering services. Here are the pertinent state-specific guidelines for paying taxes as an independent contractor in New Jersey:

How much should contractors withhold for taxes in New Jersey?

As a freelancer in New Jersey, you're responsible for paying federal, state, and self-employment taxes, with exact amounts varying based on income and individual situation.

As a general rule, independent contractors should withhold 25 to 30% of their income for taxes. However, it's important to reiterate that this is just an estimate, and the exact amount will depend on specific deductions, credits, and income levels. 

Can an employer withhold taxes for an independent contractor in New Jersey?

As independent contractors work for themselves, employers are not required to withhold taxes when paying them. The contractor is responsible for withholding their own taxes.

Can an employer be indemnified by an independent contractor for taxes?

Since independent contractors are responsible for their taxes, many employers might include an indemnification clause in a contract. This protects the hiring party from any tax liabilities that arise from the contractor's failure to report or pay taxes correctly. Companies could become vulnerable without such a clause or due diligence on behalf of contractors. 

Do self-employed freelancers in New Jersey have to pay quarterly taxes?

Since filing and reporting independent contractor taxes in New Jersey is the responsibility of self-employed freelancers, they must pay quarterly taxes as any employer would. 

Here are the due dates for each year's quarterly taxes:

• April 15th

• June 15th

• September 15th

• January 15th

Is VAT or sales tax relevant for independent contractors in New Jersey?

If you're selling taxable goods as part of your freelance employment, you need to:

• Register with the New Jersey Division of Taxation

• Obtain a Sales Tax Certificate of Authority

• Pay a combined local and state sales tax rate of 6.6%

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How to file New Jersey self-employment taxes: step-by-step guide

Although filing self-employment taxes in New Jersey can seem daunting, here's a simple guide to help you navigate the process:

1. Check your status as an independent contractor or self-employed worker through the government's online portal.

2. Gather your income documents, including invoices, receipts, and anything that proves your earnings.

3. Calculate and tally your allowable business expenses to reduce your taxable income.

4. Head to the New Jersey Division of Taxation to obtain and fill out your 1099-NEC form. 

5. Complete the NJ-1040 form, ensuring you fill out the "Net Profits From Business" section.

6. Make estimated quarterly payments to avoid penalties if you're earning more than $400.

7. File and submit your tax return by the April 15th deadline.

8. Stay updated on New Jersey's tax laws and regulations, as they may change.

The dangers of contractor misclassification in New Jersey

In New Jersey, employee misclassification has legal consequences, whether intentional or not. You should, therefore, carefully determine your employment status.

Labor laws are nuanced, often updated, and vary from state to state. This increases the potential for misclassification and makes the contractor and client vulnerable to risks and penalties. 

Under the New Jersey Wage & Hour Laws, misclassification can lead to employers:

• Paying back any unpaid wages

• Giving reimbursements for illegal deductions

• Providing entitlements and benefits to misclassified employees

• Becoming vulnerable to official inquiry‌ resulting in further fines and bans

This makes the stakes high, and employers looking to hire contractors in New Jersey must be aware of employee misclassification and how to manage it. At the same time, it's in freelancers' best interests to be classified correctly. Misclassification can result in a significantly heavier tax burden. It can also affect freelancers' legal standing and long-term earning potential. 

In this sense, misclassification is a double-edged sword that cuts both ways. If your client partners with an employer of record like Remote, it can reduce your risk of misclassification. Remote’s team are experts in local employment laws and can make sure workers are classified correctly.

How do I ask the company I'm working with to convert me to an employee?

Many companies choose to convert contractors to employees after some time, but freelancers also have the prerogative to ask to have their status updated. 

Converting from a contractor to an employee has various advantages for workers, including unemployment protections, better benefits, and paid time off. If you're thinking about asking your company to convert you to an employee, here are a few things to keep in mind:

• Do your research and prepare. Make a plan about what you want to say and research the current job trends related to your position to gain leverage.

• Choose the right time and request a meeting. Ensure you choose a time when there's no rush, no one is under a deadline, and there are no unrelated fires your boss or supervisor has to put out.

• Make your case and negotiate. Be confident, demonstrate your value to the company, and prepare to negotiate a better contract. 

If your company uses an Employer of Record service, you can quickly change your status from contractor to an employee.  

Alternatively, you can check out our  Remote Work Tool Kit for expert insights and advice on advocating for work flexibility. Share it with your employer and get one step closer to becoming an employee.

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How do I get paid as an independent contractor in New Jersey?

To get paid as an independent contractor in New Jersey, you need to:

• Determine your employment status.

• Set clear terms and legal conditions in your contract.

• Provide clients with detailed invoices for services rendered.

• Receive payments via bank transfers, checks, or online payment platforms.

While the process might be straightforward for a small business, paying contractors in the United States, including New Jersey, gets more complex as a company grows. From the contractor's perspective, this could be a disadvantage, as expanding companies might struggle to keep up with the repetitive tasks of reviewing invoices and issuing payments, directly affecting contractors. 

In this sense, freelancers will always seek out companies that know how to manage independent contractors properly. For example, Remote Contractor Management services make it easy for independent contractors to start earning online. All you need to do is follow this simple process:

1. Accept your client's invitation to onboard with Remote.

2. Receive and sign a legal and compliant contract.

3. Submit invoices for your services.

4. Wait for approval.

5. Get paid in the currency of your choice.

How Remote makes life easier for contractors and their clients 

The United States offers a rich mosaic of work opportunities for freelancers, representing one of the biggest and most diverse talent pools in the world. But to set up as an independent contractor, you must understand local laws in your state, do your invoicing, and know how taxes work in each state. 

New Jersey is no different. The state is rife with freelance opportunities but requires legal and administrative legwork. Fortunately, Remote Freelancer Hub simplifies the process and allows you to get hired and start earning money swiftly in the Garden State.  

Remote makes it easy for employers to interview and onboard you virtually from anywhere. Once onboarded, the platform helps you ‌manage contracts, clients and invoices, and also supports you with tax payments and management. 

Our contractor management services offer numerous benefits to contractors, including:

• International payments. Remote makes it easy to receive payments in multiple countries worldwide‌ — ‌allowing freelancers to work from anywhere and for companies to easily hire and pay them in the currency of their choice.

• Localized contracts and advice. Remote's team of international experts is there to offer guidance on contracts, taxes, and labor laws, while protecting workers and companies from risk and liability.

• Automated invoicing. Automation simplifies the payment process, ensuring companies receive accurate invoices and contractors prompt payments. 

• Independent contractor health insurance. Remote also offers contractors health insurance, which most freelancers don't get.

• Tax management. Whether based in New Jersey or elsewhere, Remote ensures tax collections and payments are always per local policies, providing peace of mind for both workers and companies. 

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Get started as an independent contractor in New Jersey with Remote

If you want to work as a freelancer or contractor in New Jersey, you’ll have to deal with admin work involved in setting up and getting paid as a self-employed individual. From understanding tax obligations and managing client contracts to navigating payments and invoices — there’s a lot to wrap your head around.

With Remote's Freelancer Hub, you don’t have to worry about whether you're being classified correctly, whether your contract is legally compliant, or when and how much to pay taxes. Our all-in-one platform can help you handle clients, contracts, and payments from one place. 

Discover how Remote simplifies hiring international contractors through our comprehensive global contractor management and payroll services.

Book a demo and sign up today to learn about Remote's contractor management services in New Jersey, the United States, and beyond.

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