Arizona’s Freelance Economy and What It Can Mean For You

Within nine years, the majority of workers in the U.S. are expected to earn money as independent contractors. Freelance work is a trend that won’t stop anytime soon.

Freelancing by the numbers

57 million Americans already earn money online and elsewhere as freelancers, according to Edelman Intelligence, a research firm commissioned by Upwork and Freelancers Union. Nearly 20 million of these Americans do it full-time and the freelance workforce is growing 3 times faster than the rest of the U.S. workforce. Nearly half (47%) of working millennials are choosing to freelance, leading all other demographic groups and indicating a proper shift for younger people.

“We are in the Fourth Industrial Revolution… professionals who choose to freelance make this choice knowing that, as their own boss, they are in control of their destiny,” said Stephanie Kasriel, co-chair of the World Economic Forum’s Council on the Future of Gender, Education, and Work.

Arizona may be paving the way

In 2016, Governor of Arizona Doug Ducey signed three bills supporting the effort to legitimize and enhance the ability for independent contractors to contribute to the economy of Arizona.

“As our economy advances, our government and our laws need to modernize too,” said Ducey during his State of the State address on January 11, 2016. “Arizona should be to the sharing economy, what Texas is to oil and what Silicon Valley used to be to the tech industry.”

What does being an independent contractor mean?

Independent contractors have freedoms that are unavailable to a regular employee. They have the ability to choose and maintain multiple clients, and the option to work directly for clients or through freelance job markets like Toptal, Upwork, or  Freelancer. They also have the freedom to conduct business in a way that fits their particular lifestyle.

Successful freelancers deliver products or services on time and within budget, according to their own work schedule. There are deadlines and other performance expectations that may conflict with personal business, but freelancers can keep clients happy on their own terms with careful scheduling and time management.

Downsides to freelancing full-time

Aside from the added work needed to run an independent contractor business, a freelancer is not entitled to client company employee benefits such as workers’ compensation, unemployment insurance, employee retirement programs, vacation pay, employee health plans, and family leave.

The Freelancers Union reference center and various trade and professional associations refer independent contractors to insurance and other resources that can offset a portion of these benefit shortfalls. Healthcare insurance for freelancers and their families can be researched and obtained through HealthCare.gov under the Affordable Care Act (ACA). If an independent contractor is a small business owner with between 1 and 50 employees, the Small Business Health Options Program (SHOP) may be an option for group insurance and a possible healthcare insurance tax credit.

As with any independent business, a freelancer must absorb overhead costs that may include licenses, tools and equipment, a legal place to work that meets zoning and community requirements, transportation, state and federal taxes, and other business expenses. Additionally, as of 2018, freelancers will file taxes under the new Federal tax law. It’s worth consulting a tax professional sooner rather than later to develop tax strategies for 2018 and beyond.

What hasn’t changed in the tax code?

Keep records of transactions and contracts. Make sure payments are recorded on IRS Form 1099 issued each year by the client and mailed prior to the end of January of each year. In many cases, backup withholding will be required by the IRS on payments reported on Form 1099.

But at the core of freelance business is the requirement to prove that a freelancer is indeed an independent contractor. The IRS has a specific test to determine whether a person is an employee and independent contractor for a business or a nonprofit organization. According to the Independent Contractor Agreement in Arizona, a person is a “qualified marketplace contractor” if there is a “voluntary agreement between a client and a freelancer, but [one that] does not replace the employee/independent contractor test criteria of IRS, and the Fair Labor Standards Act administered by the U.S. Department of Labor.”

In short, being a freelancer means work. But the rewards are significant for those seeking a life of freedom to be a family caretaker, to support a nomadic lifestyle, or to avoid being told what to do by a boss.

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