Independent contractor taxes in Wisconsin: freelancer tax management guide

Looking to become self-employed to make the most of Wisconsin’s natural beauty? Or perhaps you want more flexibility to explore the Great Lakes or its numerous hiking trails.

Whatever your reasons, personal or professional, setting up as an independent contractor in Wisconsin can bring you independence and autonomy like never before.

Before joining the 15% of the workforce operating as contractors in the US, you’ll need to understand how you can become a contractor, how to avoid being misclassified, how to create compliant contracts, and how to invoice and receive payments from around the world

The complexities of managing tasks such as taxes and invoicing discourage many people from becoming self-employed in the US.  This article is your go-to guide on handling these hurdles with ease. You'll also learn to navigate billing and independent contractor taxes in Wisconsin without all of going it alone.

Before you embark on this exciting transition, let’s clarify some key elements of being an independent contractor in the US. 

How do independent contractor taxes work in Wisconsin?

Navigating taxes is stressful for most freelancers. But if you want to stay compliant as you set up and expand your business, you should understand how contractor taxes work in your area.

Independent contractors have to file and pay taxes to the Internal Revenue Service, or IRS, using a 1040 or 1040-SR tax form. In the US, the self-employment tax rate is 15.3% of your income: 12.4% for social security and 2.9% for Medicare. Sole proprietors do not have to pay corporate taxes.

In Wisconsin, any income earned over $400 is taxable. If you receive money from church employment, income over $108.28 is subject to tax. The state of Wisconsin typically considers you an independent contractor if you received a 1099 form from any company you provided services to.

Wisconsin also has its own state taxes. The state income tax is a progressive tax with rates that range from 3.54% to 7.65%. In certain cases, contractors are also liable to pay Wisconsin’s sales tax, a flat rate of 5%. There is no value-added tax system in the US.

How do independent contractors pay taxes in Wisconsin?

Independent contractors must be aware of how to navigate and pay taxes each tax year. 

Employer vs. contractor legal requirements  

Independent contractors in Wisconsin need to pay the entire 15.3% self-employment tax rate themselves. When working as an employee, an employer typically covers a portion of this.

Depending on the type of work you carry out as a contractor, you may have to pay sales tax. Sales or use tax generally applies to all tools and equipment used in construction, installation, or repair services.

US law doesn't require employers to withhold any payroll taxes for contractors like they must for employees. Contractors have to file their own tax returns.

Employers typically can't be indemnified by employees or contractors unless they include an indemnity clause in the contract. Such a clause would specify any situations in which the contractor or employer may be liable to compensate the other party for losses or damages.

Quarterly tax payments 

Independent contractors in Wisconsin typically need to make estimated quarterly tax payments if they expect the tax payment to be $500 or more. Contractors should follow the dates set out by the IRS to make their payments.

Contractor tax deductions 

Independent contractors are allowed to claim certain tax deductions related to their work. The deductions that apply to you will depend on your industry and the type of work you perform.

Self-employed individuals may be eligible for deductions related to their:

• Self-employment tax

• Health insurance premiums

• Driving and transport costs

• Home office

• Internet bills.

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How to file Wisconsin self-employment taxes: step-by-step guide

Filing self-employment taxes in Wisconsin should follow these three main steps.

1. Know your social security number (SSN). If you don't yet have an SSN, you can apply for one using the SS-5 form. If you're not a US citizen or permanent resident, you can apply for an individual taxpayer identification number with the W-7 form.

2. Determine how much you owe. You can use Schedule SE or Form 1040 to determine the tax due on net earnings from your business. 

3. File online. Independent contractors can file their federal and state taxes online through the Wisconsin Department of Revenue website. 

What is an independent contractor according to Wisconsin law?

According to Wisconsin’s Worker’s Compensation Act, a worker must meet nine specific criteria to be considered an independent contractor. They must:

1. Maintain a separate business

2. Obtain a federal employer identification number or file business or self-employment tax returns

3. Operate under specific contracts

4. Be responsible for their principal expenses

5. Be responsible for satisfactorily completing their work or services

6. Receive compensation for work performed under a contract on a commission, per job, or competitive bid basis

7. Realize a profit or suffer a loss

8. Have continuing or recurring business liabilities

9. Have a particular relationship between business receipts to expenditures

If you fail to meet even one of these nine points, you'll be considered an employee instead of an independent contractor in Wisconsin.

Different types of contractors in Wisconsin

You need to register yourself as self-employed to work legally as an independent contractor. There are two ways to do this:

• As a sole proprietorship. In a sole proprietorship, you and your business are considered the same entity, and you take on liability.

• As a single-member LLC. In Wisconsin, single-member LLCs are treated and taxed in the same way as sole proprietorships.

If you have any other type of business entity, you should file a business tax return instead.

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The dangers of contractor misclassification in Wisconsin 

US law does not require employers to provide employer benefits or tax contributions for independent contractors. Therefore, hiring contractors instead of employees can seem like an attractive option for many businesses.

However, in Wisconsin, employers have to be careful not to misclassify employees as contractors. If the nature of work performed matches that of an employee, treating a worker as a contractor can trigger serious legal and financial consequences.

Misclassification can lead to employers owing back payments for missed taxes and benefits. They can also face legal complications and loss of intellectual property. Wisconsin introduced the nine contractor criteria above in an attempt to reduce the rate of misclassification.

As an independent contractor, it is important to be aware of the risks of being misclassified. If you feel that your duties are actually those of an employee, you may be missing out on rights and benefits. Consider flagging this with your employer to see if you can transition from contractor to employee. This can provide many additional protections, including employee rights, employer contributions, and income security.

For a deeper look into avoiding and addressing misclassification, check out Remote’s employee and independent contractor misclassification guide.

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

If you suspect you've been misclassified as a contractor, it can be tricky to broach the subject with your employer. But correctly classifying workers has benefits for both parties, so you just need to approach the conversation tactfully.

First, you should understand exactly when an employer should convert a contractor to an employee. It's usually appropriate to do so when you're out of compliance with labor laws, you've taken on a bigger role, or your employer has started giving you more input on how, when, and where you should work. Coming to the table with clarity and tangible evidence of the relationship can help you navigate this conversation.

Second, employers may have fears that converting contractors to employees will require additional admin, costs, and commitments. However, the process isn't necessarily more difficult than managing contractors, so understanding how it works can help you dispel your employer’s fears.

Typically, hiring remote employees abroad requires a business to set up a legal entity in the country of hire. Many employers may not want to take on this huge time and financial commitment. 

However, there's a much simpler way to hire remote employees — and remain compliant while doing so — without establishing a legal entity. This is to use an Employer of Record (EOR) service, such as Remote, which essentially acts as a third-party employer. Using an EOR is easy, cost-effective, and instant.

Many employers don’t fully understand the implications of hiring remote employees, so workers should learn to advocate for their rights and needs. Check out Remote’s remote work toolkit for expert insights into tricky conversations and other useful resources for remote workers.

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How do I get paid as an independent contractor in Wisconsin?

Getting paid is‌ arguably one of the most satisfying aspects of freelancing. Still, it comes with many challenges, such as sending invoices, chasing payments, and navigating multiple currencies and payment methods.

The payment process typically looks like this:

1. Create an invoice for your services. You can create your own invoice or use an online tool or platform. Make sure to include your tax information.

2. Decide on the payment terms and billing structure. Do you require payment upfront or on completion of the work? Do you want to implement payment milestones or a single payment? How many days after submitting the invoice do you require payment?

3. Receive payment. Agree with the client on how you'll receive the money and wait for your payment.

There are various options for paying contractors in Wisconsin, including bank transfers, online money transfers, and payments through a contract management platform.

Wire and bank transfer 

A bank transfer is a common method of paying independent contractors. This can be a good option if you work with an employer in your country of residence. Receiving money from a foreign account with this method can incur delays, international transfer fees, and currency exchange fees. 

Online money transfer

Online money transfer tools offer a quick and easy way to pay contractors. Popular tools, such as Wise and PayPal, are especially useful when passing money to other countries as they cater to multiple currencies. Platforms such as Stripe are also handy for contractors who want to take credit card payments. Online tools usually transfer money instantly. 

The downside of using an online money transfer tool is that they tend to take inflated commissions and currency exchange fees. Keeping track of multiple payments from various clients can also be confusing.

Contractor management platform 

A contractor management platform is the easiest and most comprehensive way to track and receive payments all in one place. It simplifies the complex and error-prone payment process for both employers and workers.

For example, Remote’s Contractor Management software allows employers to make and manage all contractor payments from a single platform. Contractors can receive payments directly into their bank accounts, on time, and in their local currency. The platform minimizes the costs of transfer fees and currency conversion costs. It also improves compliance and security with pre-made contracts and invoicing support.

How does the payment process work with Remote?

1. Onboard a contractor. Employers can invite contractors to begin onboarding.

2. Sign a contract. Remote has templated, compliant contracts for countries around the globe.

3. Submit an invoice. The platform has a simple system for submitting invoices.

4. Approve the invoice. Employers can quickly approve invoices and create payment requests for all freelancers.

5. Pay the contractor. The employer can quickly and easily make the payment in the contractor's local currency and even automate payments.

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The best way to get paid as a contractor 

Using a single streamlined system can save remote workers and contractors the hours of time and stress that ordinarily come with managing, tracking, and chasing invoices and payments. It can also save contractors a fortune in bank fees and currency conversions.

Remote’s Freelancer Hub allows contractors to receive international payments in 170+ countries. So, though you may live in Wisconsin, you can work with employers worldwide. Remote's localized, in-app contracts and advice mean you can put your compliance worries to rest. You can also automate invoices, ensuring that you always get paid in full and on time. Finally, you can manage your health insurance and taxes through the platform, too. 

If you're looking for a more simple way to manage remote relationships with your clients, Remote can help. 

Get started as an independent contractor in Wisconsin 

Don’t let worrisome labor laws, confusing contracts, and payment challenges get in the way of stepping into a new chapter of professional freedom. Setting up the right systems for compliance, taxation, and billing will allow you the time and space you need to show your clients great results.

The key considerations to get started are:

• Setting yourself up as self-employed 

• Understanding your tax obligations 

• Managing contracts and worker–employer relationships

• Navigating invoices and payments

With Remote's Freelancer Hub, you can automate your administrative tasks and get paid on time — every time. Our system will save you hours of brushing up on employment laws, creating contracts and invoices, and worrying about payments. Remote takes care of the admin for you and ensures that you're always compliant. 

Discover how Remote can help you, and have your clients get started with Remote’s global contractor management and payroll service today.

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