Freelancing in Texas offers flexibility and independence, but it also comes with the responsibility of managing your own taxes. Unlike traditional employees, freelancers must handle their own tax filings and payments, which can be complex without proper knowledge. Below is a detailed guide to understanding Texas tax laws for freelancers.
Federal Self-Employment Tax
Freelancers in Texas are subject to a 15.3% federal self-employment tax, which covers Social Security (12.4%) and Medicare (2.9%). This tax applies to net earnings, calculated as total income minus allowable business expenses.
- Social Security Tax: Applies to earnings up to $160,200 (as of 2025).
- Medicare Tax: Applies to all earnings, with an additional 0.9% surcharge for individuals earning over $200,000 annually.
Freelancers are responsible for both the employer and employee portions of these taxes, unlike traditional employees whose employers cover half.
Quarterly Estimated Tax Payments
Freelancers must make quarterly tax payments if they expect to owe at least $1,000 in federal taxes for the year. These payments are due on the following dates:
- April 15
- June 15
- September 15
- January 15 of the following year.
To calculate these payments, freelancers use IRS Form 1040-ES. Accurate record-keeping of income and expenses is essential to avoid underpayment penalties.
No State Income Tax in Texas
One major advantage of freelancing in Texas is the absence of a state income tax. Freelancers do not need to file or pay taxes on personal income at the state level. However, other taxes may apply depending on business activities:
- Franchise Tax: Applies to businesses with annual revenue exceeding a certain threshold. While sole proprietors are generally exempt, LLCs and corporations may be subject to this tax.
- Sales Tax: Freelancers selling taxable goods or services must collect and remit sales tax at a combined rate of up to 8.25% (6.25% state rate plus local rates).
Tax Deductions for Freelancers
Freelancers can significantly reduce their taxable income by claiming deductions for business-related expenses. Common deductions include:
- Home Office Deduction: For spaces exclusively used for work.
- Health Insurance Premiums: Deductible if not covered by an employer-sponsored plan.
- Business Expenses: Includes travel, office supplies, advertising costs, and equipment purchases.
- Qualified Business Income Deduction: Allows up to a 20% deduction on qualified business income.
Proper documentation is critical when claiming deductions to avoid IRS scrutiny.
Filing Requirements
Freelancers earning more than $400 annually must file a federal tax return using Form 1040 along with Schedule C (Profit or Loss from Business) and Schedule SE (Self-Employment Tax). Additionally:
- Clients paying over $600 must issue 1099 forms, which freelancers must report as income7.
- Freelancers receiving payments through third-party platforms may also receive 1099-K forms.
Practical Tips for Compliance
- Track Income and Expenses: Use accounting software or apps designed for freelancers.
- Set Aside Taxes: Reserve 25–30% of each paycheck for taxes to avoid surprises.
- Consult Professionals: A tax advisor can help navigate complex situations and maximize deductions.
While Texas provides the benefit of no state income tax, freelancers must manage federal self-employment taxes and other obligations like quarterly payments and potential sales tax collection. By staying organized, leveraging deductions, and seeking professional advice when needed, freelancers can simplify their tax responsibilities and remain compliant with both federal and state laws.
SOURCES:-
[1] https://www.everlance.com/blog/texas-self-employed-taxes
[2] https://www.selfemployed.com/self-employment-tax-guide-texas/
[3] https://remote.com/blog/contractor-taxes-texas
[4] https://turbotax.intuit.com/tax-tips/self-employment-taxes/top-tax-write-offs-for-the-self-employed/L7xdDG7JL
[5] https://www.hellobonsai.com/tax-calculators/self-employment-texas
