On July 4, 2023, President Donald Trump enacted a substantial tax overhaul that will affect freelancers and gig workers in the United States. This new legislation, which aims to simplify the tax landscape, introduces changes that could be beneficial for those navigating the unpredictable income associated with non-traditional jobs, such as delivering for DoorDash or working independently.
Freelancers often face additional challenges during tax season due to varying income streams. David De Jong, a tax attorney at Stein Sperling, emphasizes that understanding these new provisions is paramount for all taxpayers, regardless of their income level. The recent adjustments could lower tax liabilities and enhance deductions for self-employed individuals, making tax filing somewhat less daunting.
Many of the law’s provisions come into effect for the 2025 tax year, which will be filed in 2026. The legislation notably made permanent the lower income tax rates introduced in the 2017 Tax Cuts and Jobs Act. Instead of reverting to higher rates, these lower rates will remain indefinitely—a shift that benefits most U.S. taxpayers.
The continuation of these tax rates allows freelancers to better plan their estimated quarterly taxes, thereby mitigating the financial surprises often experienced during tax season. Moreover, gig workers will retain a larger portion of their earnings, improving overall cash flow throughout the year.
An essential advantage for self-employed individuals is the qualified business income (QBI) deduction, which permits freelancers to deduct up to 20% of their qualifying income. This provision, which was previously slated to expire, has now been solidified. De Jong suggests that this deduction can lead to substantial annual savings for business owners.
Freelancers earning tips can also look forward to new opportunities starting in the 2025 tax year. They will be able to deduct up to $25,000 in qualified tips and $12,500 in overtime pay. However, details on what qualifies as a ‘voluntary’ tip remain somewhat unclear, and additional IRS guidelines are anticipated to clarify these provisions.
Changes have also been made regarding the issuance of 1099 forms, which report income for independent contractors. The threshold for issuing 1099-MISC and 1099-NEC forms has been raised from $600 to $2,000. Although these adjustments affect employer reporting, it’s crucial to remember that freelancers must report all income, regardless of whether they receive a 1099 form, to comply with tax obligations.
The standard deduction is another area of change, as it has become more favorable for taxpayers, including freelancers. The increased standard deduction amounts for the 2025 tax year—$15,750 for single filers, $23,625 for heads of household, and $31,500 for married couples—will simplify the process for many, allowing them to reduce their taxable income without the hassle of itemizing expenses.
Freelancers should remain vigilant about state tax regulations, as they can vary widely and may not reflect federal changes. Proper record-keeping will be imperative to take full advantage of new deductions while ensuring compliance with tax reporting requirements.
While these updates present potential savings and simplified filing, industry experts note that the long-term viability of these provisions is uncertain. Many will expire in 2028 unless renewed, particularly during the upcoming election cycle, when lawmakers often reassess tax policies that may impact their constituents.
As each individual’s income level, business structure, and location will dictate which provisions apply, engaging with a tax advisor can be a strategic move for freelancers and gig workers. Professional guidance can clarify which deductions are available and assist in preparing for future tax seasons.
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