Well, yes, it's overly complicated, but so is the entire tax code. News at 11:00.

However, her comparisons are just wrong. She says that a freelancer earns $40k, from which you pay 13,000 in various taxes. She then compares this to someone working for an employer, earning $40k. But that's not a fair comparison - the real comparison is what that employee costs the employer. An employee whose payroll costs are $40k takes home maybe $30k.

But, yes, simplify the tax code. And return health insurance to being insurance that individuals can purchase.

A random guy is right--companies pay a tremendous amount to the gov't that employees don't see.

That's why, as a freelancer, I try to calculate my billing rates to be roughly twice per hour what I would earn if I was employed by a company. (I'm not always correct, as I charge by the project.) But, that extra amount covers taxes and benefits.

But the tax code is ridiculous as is tying insurance to your employer.

As an intelligent freelancer I actually pay much less than 30% in taxes. Before I went independent I was paying roughly that percentage and a lot of my taxes were paid by my employer. When you go independent you need to look very hard at the business deductions. You also need to do your own damn taxes (using a program is fine). That way you know which of your actions are high tax and which are low tax. Small changes in your behavior can really save you in April.

There you guys go again, insisting that medical care can only be obtained through "insurance"...

No.

The vast bulk of medical incidents can be handled through credit, with savings for major work gathered through interest collected on that credit.

National or "universal" health care IS NOT INSURANCE, because there is NO party who will NOT access benefits.

Obviously.

Many pay both employer and employee contributions to Social Security, yet are ineligible for unemployment benefits and workers' compensation.

Well, of course. They're not paying for unemployment insurance or workers comp insurance, so why should they get benefits they haven't paid for?

My employer sends me a letter every year detailing my benefits, and what it is that they pay to employ me. Turns out it is another $15,000 or so over my gross. Includes both ends of Social Security.

What, you think employers pay that out of the generosity of their cold, dark little hearts?

"That's why, as a freelancer, I try to calculate my billing rates to be roughly twice per hour what I would earn if I was employed by a company. (I'm not always correct, as I charge by the project.) But, that extra amount covers taxes and benefits."-Suzanne Lucas

Thank you -- this is really helpful thinking. PS Suzanne is an expert in this -- The Evil HR Lady (for Inc. and others).

Rad: "There you guys go again, insisting that medical care can only be obtained through "insurance"..."

No one is insisting this at all.

One must pay quarterly taxes based on tax tables and regs not available until the end of the year. The last quarterly tax filing is due Jan 15 but 1099s and so on don't get to you till mid feb. It does not merely take mind-reading, it is impossible to be in compliance.

"That's why, as a freelancer, I try to calculate my billing rates to be roughly twice per hour what I would earn if I was employed by a company."

I'm a government contractor employee. I know from working proposals and labor rates that the hourly rate that my company charges the customer for my labor is roughly double what they pay me.

"No one is insisting this at all."

On the contrary. It's the common usage, perpetuating a fundamental error. You could call it a meme, like the claim that "everyone once thought the world was flat". That's untrue, but it is still repeated.

Every time a health care policy's funding is discussed, the term, "insurance" is used. It is an error right up there with the layman's use of "theory" to mean, "wild guess".

In addition to the woefully wrong association with current consumer's insurance policies, in which a measure of confidence is warranted, it remains that NO ONE is guaranteed treatment by a policy.

Although no one is guaranteed treatment by the simple possession of a medical credit card either, as I propose in the link above, these people are not billed thousands of dollars and/or penalized in taxes while they are refused treatment, and the market, rather than government policy, would determine what health care facilities operate.

The distinction:
Insurance collects premiums from a group associated with a risk in order to make whole the individuals in that group that claim a loss. Most of the group does not suffer a loss.
Socialized Medicine collects premiums from everyone, whether they participate in the risk or not, and the entire group makes claims.

You flatly cannot manage one like the other efficiently, even lying about how "government" care works and passing mandates to get people to buy in. Especially by lying about it.

CC,

If you pay 90% of your last year's tax bill you will not owe any penalties due to underpaying. You just have to settle accounts with the IRS in April. Depending on what happened that year you may owe more or you may get a check back. But that is hardly unique to freelancers.

I do agree I would love to get away from our progressive tax system so you could predict what you owe a bit better. Finding out what the bill is 0-12 months later is really annoying.

"Well, of course. They're not paying for unemployment insurance or workers comp insurance, so why should they get benefits they haven't paid for?"

I've certainly been having to pay for NC unemployment insurance as a self employed person.

That is interesting Gumby. Are you eligible or not for unemployment?

Texas has a tax specifically for unemployment benefits. I know I have not bothered to pay it. Even if I did pay it you are only eligible for benefits in case of a layoff. As a sole proprietorship with no employees I can't be 'laid off' and hence would never be eligible for any benefits. So no reason to pay into the system.

I was under the impression that employers must pay unemployment insurance, which is NOT part of regular social security/medicare tax.

I know that employers have, as an overhead cost, to pay Social Security tax. Freelancers are both employer and employee - so they pay both. It isn't an "extra" tax (although it feels that way - I've paid it). It is more of a hidden tax. That is, most people don't think of it, but it severely impacts everyone's salaries.

At my very first job, in high school, my boss's mother (who did the books) commented that they'd happily pay me more if they didn't have to pay social security tax. I didn't know about the employer portion at the time (being all of 15 or 16), but now it makes a lot of sense.

Many freelancers I've met - particularly those starting out - confuse their payments (from clients, etc) with their income. They sometimes remember to take out obvious costs (like materials, office expenses, etc) but forget that taxes will reduce their take-home pay AND they often don't even know about employer taxes.

I'd be happy if we just made all the taxes obvious - either they are overhead to the employer or they are "overhead" to the employee - not a mix.

Right now it's like having a sales tax on both the buyer and seller. If the tax was on Sears, the total cost to us would be the same - for that matter, right now, Sears is the one who has to actually pass the tax to state coffers and, technically, they are the ones paying it. But if there were a portion they COULD NOT CHARGE when you buy stuff, that would be like the employer portion of payroll taxes.

I think the setup is unethical as it is clearly trying to confuse/hide things so it's not clear exactly how high we ARE taxed on our incomes.

"I think the setup is unethical as it is clearly trying to confuse/hide things so it's not clear exactly how high we ARE taxed on our incomes."

In construction, a lot of materials are sold to the end user wholesale. In lieu of sales tax, there is something called a "use tax", which must be paid by the buyer. You have to keep track of that stuff. (One of the things I learned while we were building our house...) In the larger scope, a use tax isn't very practical -- it would drive you crazy trying to keep track of taxes on everything you buy, and it would open up all kinds of avenues for government corruption and selective prosecution.

In construction, a lot of materials are sold to the end user wholesale. In lieu of sales tax, there is something called a "use tax", which must be paid by the buyer. You have to keep track of that stuff. (One of the things I learned while we were building our house...) In the larger scope, a use tax isn't very practical -- it would drive you crazy trying to keep track of taxes on everything you buy, and it would open up all kinds of avenues for government corruption and selective prosecution.
Cousin Dave at April 21, 2017 8:09 AM

I think every state is allowed to handle this differently. One of the reasons construction materials dont get taxed most places is because they become part of real property.

Real property is taxed annually in most states so taxing the construction materials would be taxing it twice. Once as a consumable which it is not, and again annually as real property.
It really depends what the sales tax statutes cover.

There are some states who dont have property taxes and some that dont have sales taxes. Some tax everything.

Texas is notorious for its real property taxes. They used to attempt to even tax cars as real property that were liciensed out of state by active duty military who didnt oive in the state but claimed residence there.