Because freelancers are not our employees and we don't pay taxes on payouts, they must declare any income received via Solar Staff by themselves.
To carry on tax accounting in the US for your Solar Staff income, you need to:
Have a taxpayer identification number.
Tax residence
US citizens and residents are subject to US income tax on their worldwide income. Non-resident aliens are required to pay income tax only on income that is earned in the US or earned from a US source (i.e. related to a trade or business in the United States).
The following are considered United States residents for tax purposes:
US citizens
Green card holders, with the following caveats:
The resident alien status remains effective until the green card is officially canceled
Those who surrender their green cards are considered tax residents if they had their green card for at least 8 of the 15 years prior to abandoning it
Persons who meet the substantial presence test for the calendar year. To meet this test, you must be physically present in the United States for at least 31 days during the current year and 183 days during the 3-year period that includes the current year and the 2 years immediately before that, counting:
All the days you were present in the current year, and
1/3 of the days you were present in the first year before the current year, and
1/6 of the days you were present in the second year before the current year
The United States has income tax treaties with a number of countries for the purpose of eliminating double taxation (full list here). The provisions of such treaties may override the US resident alien rules.
Taxpayer identification number
A Taxpayer Identification Number (TIN) is used by the Internal Revenue Service (IRS) in the administration of tax laws and must be furnished on returns, statements, and other tax-related documents. TIN matches the Employer Identification Number (EIN) or the Social Security number (SSN).
Identification numbers are issued either by the Social Security Administration (SSA) or by the IRS. An SSN is issued by the SSA, whereas all other TINs are issued by the IRS.
Identification numbers in the United States:
Social Security number (SSN): A 9-digit number used for income tracking and determining eligibility for social benefits. To obtain this number, you will need to complete Form SS-5 (Application for a Social Security Card), as well as submit evidence of your identity, age, and US citizenship or lawful alien status.
Employer Identification Number (EIN), also known as Federal Tax Identification Number: A 9-digit number used to identify a business entity. Use Form SS-4 to apply for an EIN.
Individual Taxpayer Identification Number (ITIN): A 9-digit tax processing number only available for certain non-resident and resident aliens, their spouses, and dependents who cannot get an SSN. To obtain an ITIN, you must complete IRS Form W-7 (IRS Application for Individual Taxpayer Identification Number). Form W-7 requires documentation substantiating foreign/alien status and true identity for each individual.
Adoption Taxpayer Identification Number (ATIN): A temporary 9-digit number issued by the IRS to individuals who are in the process of legally adopting a US citizen or resident child but who cannot get an SSN for that child in time to file their tax return. Form W-7A (Application for Taxpayer Identification Number for Pending US Adoptions) is used to apply for an ATIN.
Freelancer in the United States: Taxes and contributions
In the United States, you can be self-employed, which means you carry on a trade or business as a sole proprietor or an independent contractor, or are otherwise in business for yourself (including as a part-time business or a gig worker). To meet your self-employed tax obligations, you must have an SSN or ITIN.
The self-employed are classified into two types:
The tax obligations are identical for both, with the difference lying in the nature of each status:
Independent contractors offer their services to companies in exchange for a certain amount of money. To be considered an “independent contractor,” a self-employed person must provide services to a client as a standalone business rather than as a full-time employee. For reporting, independent contractors usually use Form 1099 (1099-K, 1099-NEC, 1099-MISC), which is submitted to the IRS by companies.
Independent contractors can perform work under contracts or receive income from other sources, such as the sale of their products to clients. A sole proprietorship is a single-person business of any type. If you receive income from services or products you sell and incur expenses to generate that income, you are a sole proprietor.
IMPORTANT! You can use Solar Staff as a US-based self-employed person, but there is no option to choose a tax status in the service. That being said, you can still fill in your tax ID in your account.
Read on for more details on self-employed tax obligations in the US.
Estimated Tax for Individuals is levied on all earnings and calculated at a progressive rate depending on the filing status:
Single: You’re unmarried or legally separated as at the last day of the tax year.
Married filing jointly: If you’re married as at the last day of the tax year, you and your spouse can choose to file a joint return. If your spouse died during the tax year, you can choose to file a joint return for that year.
Married filing separately: A married couple can also choose to file separate tax returns (using the Single process).
Head of household: To file as head of household, you must have paid more than half the cost of keeping up a home for yourself and a qualifying person, such as a child or dependent relative. You must also be single or considered unmarried as at the last day of the tax year.
Qualifying widow(er) with dependent child: This filing status may apply if your spouse died during the previous two tax years and you have a dependent child (the rates are identical to the Married filing jointly status).
Taxable income, $ Single, Married filing separately | Taxable income, $ Married individuals filing joint returns | Taxable income, $ Heads of household | Tax rate, % |
up to 11,000 | up to 22,000 | up to 15,700 | 10 |
11,000–44,725 | 22,000–89,450 | 15,700–59,850 | 12 |
44,725–95,375 | 89,450–190,750 | 59,850–95,350 | 22 |
95,375–182,100 | 190,750–364,200 | 95,350–182,100 | 24 |
182,100–231,250 | 364,200–462,500 | 182,100–231,250 | 32 |
231,250–578,125 | 462,500–693,750 | 231,250–578,100 | 35 |
from 578,125 | from 693,750 | from 578,100 | 37 |
Taxpayers can itemize deductions based on a paper trail (learn more) or claim a standard deduction in a fixed amount (amounts as at 2023):
Filing status | Deductible amount, $ |
Single, Married filing separately | 13,850 |
Married filing jointly | 27,700 |
Head of household | 20,800 |
For reporting, use the following forms:
Form 1040, US Individual Income Tax Return: Filed by the 15th day of the fourth month following the end of the tax year (i.e. by April 15). You can get a 6-month extension to file the tax return (the payment deadline remains the same) by filing Form 4868 (Application for Automatic Extension of Time to File US Individual Income Tax Return) before the due date for filing the return. The tax is to be paid within the time frames specified in Form 1040-ES.
Schedule C of Form 1040 is for reporting profit from business (sole proprietorship). It enables you to claim earned income tax credit (EITC). Use the EITC assistant to check if you qualify. See here for all sole proprietorship forms and instructions.
In addition to Form 1040, freelancers are subject to quarterly estimated taxes if they expect to owe at least $1,000 in taxes from their self-employed income throughout the year. For that, use Form 1040-ES (Estimated Tax for Individuals), which features four payment vouchers – one for each payment period. The payment is due before the 15th day of the month following the quarter. The last payment can be made later if you file your tax return and pay the entire balance due by February 1. These payments are approximate, and if you underpay the quarterly tax, you will need to pay the remaining tax when filing the annual tax return. In case of overpayment, you will receive a tax refund. You can make estimated tax payments online, by phone, or from your mobile device using the IRS2Go app (details).
Useful links: Income tax calculator; Schedules for Form 1040 and instructions; Publication 505 regarding estimated tax.
Alternative Minimum Tax (AMT) applies to taxpayers with high economic income and replaces estimated tax for individuals (check if you owe AMT).
AMT exists as an alternative to the estimated tax for individuals. It rejects the standard deduction and many common tax breaks used by individual taxpayers to lower their IRS bills. AMT has its own set of rates (26% and 28%) and requires a separate calculation from regular federal income tax. Basically, it’s the difference between your regular annual income tax bill and your AMT bill based on income thresholds:
$220,700 for married filing jointly
$110,350 for all other taxpayers
AMT phases out until you reach the following phase-out thresholds:
$1,156,300 for married filing jointly
$578,150 for all other taxpayers
Technically, every US citizen is required to pay AMT if their tax after all the applicable deductions goes below a certain level. If your estimated tax is less than AMT, then you need to pay AMT.
The easiest way to understand AMT is to think of it as the absolute minimum tax. So if usually your income is taxed at a rate below 26% under the general regime, then you must pay AMT.
Then there's the AMT exemption, which applies if your annual income falls below a specified amount (as at 2023):
Filing status | Exemption amount , $ |
Single, Married filing separately | 81,300 |
Married filing jointly | 126,500 |
Reporting. Form 1040 (US Individual Income Tax Return) has the information for determining whether you need to pay AMT on your income. If you qualify for AMT, you are to file Form 6251 (Alternative Minimum Tax – Individuals), see here how.
If you are eligible for a special minimum tax credit on regular tax in a given year, you need to fill out and file Form 8801 (Credit for Prior Year Minimum Tax – Individuals, Estates, and Trusts) to apply the minimum tax credit.
Useful links: AMT calculation, AMT FAQ.
Self-employment tax is levied at 15.3%. The rate consists of two parts: 12.4% for social security (old-age, survivors, and disability insurance) and 2.9% for Medicare (an additional Medicare tax rate of 0.9 % applies to wages, compensation, and self-employment income above a threshold amount).
You figure SE tax using Schedule SE (Form 1040 or 1040-SR), see here for instructions.
Sales/use tax is imposed on the sales of goods/works/services. The difference between sales tax and use tax lies in their calculation and nature. Sales tax is collected and remitted by the seller to the government at the time of purchase, while use tax is figured and paid by the consumer or end user (learn more).
Registration: Every individual who engages in business and meets the physical or economic nexus standards (or any other requirement) of the state must register with that state to obtain a tax license, permit, or certificate before making sales or providing services (learn more).
Sales/use tax is levied locally, meaning each state imposes its own tax rate on a specific set of goods/works/services. The use tax rate is the same as the local sales tax rate, but only one of the taxes is paid at a time.
The tax rate varies by state and ranges from 2.9% to 7.25%.
Some states have reduced or zero rates for certain activities (learn more).
Most states also allow for a “local scenario,” wherein local jurisdictions (such as cities and counties) levy an additional tax of 1% to 5% on top of state-level tax.
The reporting and payment obligations may be monthly, quarterly, or annual.
Generally, states require businesses to register for sales tax once their sales activity hits the threshold in sales or separate sales transactions (learn more).
Consider an example where several states do not levy sales tax on software development services (Software as a Service, SaaS):
California | Florida | New York |
The sale of an already developed program is not taxed if the program is delivered to the buyer as a digital product, with the buyer not receiving physical media during the transaction (otherwise, there is an obligation to pay tax). Additionally, software that is considered specialized is not subject to taxation in this state. | The state does not have legislation relating specifically to SaaS, so services that are not specifically listed as subject to sales tax are considered non-taxable. | If the software is custom-made, it is not taxed. This implies customers purchasing specially developed programs and databases for specific needs. That being said, computer software and database services are taxed if they are intended for sale to the public or other customers. |
Useful links: More details about sales tax and use tax, Sales Tax Calculator.
Additional info
Tax information for companies (only individual arrangements are possible with Solar Staff)
Online tax calendar
Income received via Solar Staff is declared based on certificates and invoices, and in accordance with the Offer Agreement
If you have any questions, get in touch via the chat in your Solar Staff account or email us at [email protected].