You are classified as self-employed when you perform freelancing work. As a result, you should treat all freelance income the same way you would if you were a sole proprietor or operated a small business.
Nowadays, freelance work can take on a variety of forms. When certain types of freelance income are classified as Personal Services Income (PSI), complications can quickly arise.
This article will assist you in avoiding the annoyances associated with tax preparation. Continue reading to learn everything you need to know about working as a freelancer on a pay-as-you-go basis.
Understanding The Basics of PAYG
PAYG is short for pay as you go. It is a system used by the Australian government to tax all types of income.
Under the PAYG system, the government taxes you on all types of income. The percentage of tax you pay depends on the kind of income you receive.
Since you are a freelancer, you can earn any number of different types of income. As a result, the PAYG tax rules are more complicated for employees and employers.
If you pay tax using the PAYG system, you will be issued a notice of assessment. This notice outlines the income you received during the relevant tax year.
It is your responsibility to carefully review your notice of assessment to ensure that the information is correct. If not, you can contact the Australian Taxation Office (ATO).
Breaking Down the Eligibility for PAYG Payments
The ATO requires all individuals who earn Australian-source income to pay tax. This is the case regardless of the type of income you receive.
As a freelancer, you are not eligible to receive a tax file number. To pay tax using the PAYG system, you must be issued a notice of assessment by the ATO. Additionally, you do not have a tax file number (TFN), unlike employees. However, the ATO will not issue a notice of assessment unless you are an Australian taxpayer.
Evaluating PAYG Installments
Most freelancers are classified as small businesses. However, they are not required to pay a more extensive tax instalment. Instead, they are required to pay several smaller tax instalments.
When your total annual taxable income is less than $5,958, you are required to pay your tax quarterly.
If your total annual taxable income is more than $5,958, you are required to pay your tax yearly.
If you are a freelancer, your annual income will fluctuate throughout the year. Therefore, you need to make sure that you pay your income taxes on a timely basis. Otherwise, you could face steep penalties.
PAYG Payment Method
It is your responsibility to pay your income taxes on a timely basis. To do so, you must use the Payment Method the ATO has provided you.
Under the PAYG system, freelancers must pay their taxes under the Individual tax return method. Your tax deductions are calculated directly from your tax return.
If you fail to pay your taxes on time, you could face penalties. The ATO can require you to pay additional interest on top of your income taxes. They can also charge you an additional fee.
Conclusion
Paying taxes will make you a responsible citizen in this country and help you be financially stable and stress-free in your life. You reduce your chances of mistakes and being penalised by paying your taxes on time.
If you face difficulties while paying your taxes, you can contact a professional small business accountant. At The ECommerce Accountant, we can help online freelancers minimise tax & increase profit. Contact us today!