Independent contractor taxes in New York: freelancer tax management guide

If you’ve decided to work as a contractor or freelancer in New York, you’ll enjoy greater freedom and flexibility ‌than working in a permanent position for an employer. However, independent contractors must navigate the unstable world of compliance, invoicing, and payments. In fact, a survey found that one in 10 New York workers equated being an independent contractor to being “underpaid and unprotected.” 

But, equipped with the right knowledge and systems, you can learn to manage your clients, contracts, and taxes better.

In this article, we’ll take you through all you need to know to manage payments, taxes, and compliance easily. 

How do independent contractor taxes work in New York?

Independent contractors operating from New York must understand their tax obligations both in the country and the state. 

The federal self-employment tax rate is typically 15.3%, covering Social Security and Medicare taxes. Independent contractors pay this rate on any income over $400 (or $108.28 for church employment). They also pay federal income taxes, ranging from 12% to 35%, depending on their tax status. 

As well as federal taxes, New York imposes its own state taxes. Independent contractors who are residents of New York State pay a graduated-rate income tax depending on their earnings, ranging from 4.50% to 10.9%. Residents of New York City may need to file the New York City income tax and Yonkers residents, the Yonkers income tax. 

VAT (Value Added Tax) is not commonly applicable in the United States, including New York. Instead, independent contractors may need to collect and remit sales taxes if they provide certain taxable goods or services.

Independent contractors are responsible for putting money aside and making their own tax payments, as well as filing an annual tax return with the Internal Revenue Service (IRS). 

Individuals will need to file their taxes on a 1040 or 1040-SR form. To track earnings with employers, contractors should submit a W-9 form to their employers. For any payments over $600, the employer reports earnings to the IRS using a 1099-NEC form. It is important for contracts to keep copies of these forms on record. Finally, contractors should file state taxes with the state of New York. 

How do independent contractors pay taxes in New York?

Freelancers and independent contractors registered for tax in New York should bear in mind the following:

Withholding taxes

In accordance with US regulations, employers do not have to withhold taxes on your behalf. As an independent contractor, the responsibility for tax withholding falls upon you. You will need to estimate your earnings and set aside money to make tax payments.

For many independent contractors, managing tax withholding can be a complex task, particularly coming from traditional employee dynamics. We recommend allocating a percentage of each paycheck you receive into a separate account. It should cover all relevant taxes after accounting for eligible deductions.

Quarterly tax payments 

New York registered contractors should make estimated payments throughout the year to cover their federal taxes. These payments are usually made every quarters with the IRS (using form 1040-SR).

IRS tax payments are due on:

• April 15

• June 15

• September 15

• January 15

You can typically file state taxes once a year by April 18.

Indemnification

Employers typically are not liable to make tax contributions for independent contractors, and they are not liable for any damages. Contractors cannot indemnify them unless they include an indemnity clause in their contracts. 

Tax deductions 

Despite multiple taxes to contend with, a benefit of being an independent contractor is being able to write off multiple work expenses. Freelancers and contractors may commonly deduct:

• Home office costs

• Transport and travel expenses

• Internet and phone bills

• Medical insurance costs 

• Business-related expenses 

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

Filing taxes as a New York resident can be tricky as there are federal and state taxes to contend with. Here’s how to keep on top of all obligations.

Federal taxes 

1. Apply for a social security number. You will need an SSN to file a federal tax return; you can obtain the SSN using an SS-5 form. Alternatively, you can use an individual taxpayer identification number (ITIN), which you can get with the W-7 form.

2. Calculate tax due. Calculate your estimated quarterly payments using Form 1040-ES. Schedule SE (schedule of Form 1040) determines the tax due on your annual return. 

3. Make quarterly payments. Create an account on the IRS website and make payments online or with another payment method. 

4. File your annual tax return. File your tax return online with the IRS.

State taxes

1. Register with New York State for tax purposes.

2. File your income tax return

3. Make relevant quarterly or annual payments.

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What is an independent contractor according to New York law?

The New York State Labor Department states that an independent contractor is determined by the worker-employer relationship. It depends on how much supervision, direction, and control the employer exerts over the worker. 

Independent contractors generally:

• Are autonomous and free from supervision 

• Are in business for themselves, offering services to the public

• Assume risks 

• Pay their own expenses

• Negotiate their own rates

An independent contractor should register as self-employed before providing services to employers. In New York, you can do this in several ways. 

Sole proprietorship

Most independent contractors and freelancers opt for the sole proprietorship model. This uncomplicated structure serves as an easy entry point for earning income through service provision. When operating as a sole proprietor, individuals use their own name and are synonymous with their business entity. They assume full responsibility for all liabilities.

Partnership

A partnership closely resembles a sole proprietorship. Instead of operating individually, you decide to offer business services with one or more partners. All partners share collective responsibility for fulfilling all obligations, assuming joint liability.

Single-member limited liability company (LLC)

You can also choose to provide services through a limited liability company. This is its own distinct legal entity but acts as a sole proprietorship for tax purposes. Individuals must state business income and expenses on their New York State personal income tax returns.

The dangers of contractor misclassification in New York

Correctly classifying workers in New York is important for both employers and independent contractors. It might be tempting for businesses to hire workers as contractors to avoid the hassle of paying employee tax contributions and benefits. However, if the nature of the relationship fits that of an employee, the employer runs the risk of legal and financial penalties for misclassification. 

Misclassifying an employee as a contractor can lead to owing unpaid taxes and benefits, receiving fines, and losing intellectual property for employers. For workers, it can mean missing out on protections, statutory benefits, and income security. Contractor-status workers may also be liable for damages, putting themselves at more financial risk than employees. 

Employer-worker relationships can be tricky to define, so employers may not always be aware of misclassifications. Both parties should stay abreast of how working relationships evolve over time, making any relevant updates to contracts. As a contractor, if you feel that you legally fit the description of an employee, you may be at unnecessary risk. Speaking to your employer can help you convert from a contractor to an employee and receive the relevant benefits, rights, and income security.

Check out Remote’s expert misclassification guide to gain clarity around handling misclassification.

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

Although it might seem daunting, sometimes a simple conversation may be enough to help you get properly classified. First, ensure that it is the right time to convert from a contractor to an employee. For example,‌ you have taken on more duties or are no longer compliant with local laws. Then schedule a meeting with your employer and let them know your concerns. 

Employers may not be aware of the complexities of the employee vs. contractor relationship or the consequences of misclassification. Coming in with clear evidence of your working relationship as well as the risks can help your employer understand the importance. 

Some employers may also have concerns about the costs and resources needed to hire remote employees, especially in other countries. They may think that managing a contractor is simpler to avoid the costs of opening entities in the country of hire. However, converting you to an employee can be quick, easy, and cost-effective. 

Working with an employer of record (EOR) service like Remote can enable employers to hire employees globally without opening an entity. 

Understanding that there are helpful options for employee management can be helpful when speaking to your employer. Remember, you are within your rights to request this from your employer, and bringing it to their attention can also help them avoid legal risks. Get additional insights and help on remote worker topics with Remote’s remote worker tool kit. 

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

When you are used to being on the monthly payroll, managing payments as an independent contractor can be a challenge. 

There are many ways employers can pay independent contractors, but the best choice for you can depend on where your employer is based and how quickly you want to see your payments. 

Some of the most popular payment methods are as follows.

Bank transfer 

For US-based employers, paying via direct bank transfer or wire transfer can be a fast, convenient, and cost-effective option. International clients, on the other hand, should bear in mind that bank transfers can have significant transfer fees and unfavorable exchange rates.

Online transfer tools 

One of the quickest and easiest ways to make payments anywhere in the world is via online payment platforms, such as PayPal and Wise. Typically, you just need to create an account and link up your bank to instantly receive international payments. On the downside, these tools usually take large commissions and fees. 

Contractor management platform 

A contractor management platform like Remote Contractor Management is a great solution for making fast and secure payments without high fees. Remote’s platform is an all-inclusive tool for managing contractors, helping employers automate payments and manage invoices. Contractors receive money directly in their bank account in their local currency. 

Using the platform is simple. 

1. Onboard contractors through an employer invitation.

2. Sign a contract that is ‌compliant with labor laws.

3. Submit an invoice directly on the platform.

4. Approve the invoice and ‌payment request.

5. Pay the contractor in local currency.

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How Remote makes life easier for contractors and their clients

Systemizing your invoicing, payments, and taxes in one place is the most effective way to run a freelance business. Remote’s Freelancer Hub is a ready-to-use system that can help independent contractors stay compliant, track all invoicing, and get paid all in one place. 

Our contractor management services provide a range of benefits to contractors, including:

• International payments.Remote facilitates payments in multiple currencies and countries, enabling freelancers to work from anywhere and companies to hire and pay them globally.

• Localized contracts and advice. Our international experts offer guidance on contracts, taxes, and labor laws, helping to protect both workers and companies from potential risks and liabilities.

• Automated invoicing. Automation streamlines the payment process, ensuring accurate invoicing and timely payments for contractors.

• Independent contractor health insurance. We offer health insurance for contractors, a benefit that many freelancers typically lack.

• Tax management. Remote ensures tax collections and payments are handled according to local regulations, providing peace of mind for both workers and companies, regardless of their location.

Get started as an independent contractor in New York with Remote

When you get started as an independent contractor, there’s a lot to handle on your own — from understanding your rights and obligations to paying taxes and getting paid on time. 

Alternatively, you can make your life easier with Remote’s Freelancer Hub. Our intuitive platform makes it easy to manage clients, contracts, and invoices all in one place. 

Explore how Remote makes hiring international contractors simple and efficient with our comprehensive global contractor management and payroll services.

Get started with ​​Remote’s today and manage your freelance career easily in New York!  

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