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How to get expenses paid for on Upwork? (And a tip to keep your rating...)

c000
Active

Hey everyone!

 

How do I charge my client for expenses? On my current project I need to get a license for some 3rd party software, but I can't find any documentation (other than some vague mention in some policy) on how to actually get expenses paid.

 

I made the mistake of offering my client to just pay me for the license (which is a fraction of the total project cost) through paypal (as this seemed like the easiest way to solve the issue), but my account was suspended soon after for suggesting such a thing.

 

Thing is, nowhere on upwork is there any clear info on how to deal with expenses. And as a result I now have to wait 90 days to get my top rated status... (I'm trying not to be bitter)

 

So the question is: What is the proper way to deal with expenses?

 

And the tip is: Don't suggest payments outside of upwork even for relatively small amounts of money, and even if you know / trust the client. 

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yitwail
Community Guru

Co, both methods are permitted, but in the case of a bonus payment, there's still a security period during which the amount of bonus is pending but not available, so if the client needs to have the project completed as soon as possible, then the client should purchase the license then provide it you. Conversely, with bonus payment, the amount would have to be increased to offset the 10% Upwork fee, so the client would also save money by buying the license directly instead of paying you to buy it with a bonus.

__________________________________________________
"No good deed goes unpunished." -- Clare Boothe Luce

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22 REPLIES 22
alexsis
Ace Contributor

Hi

Sorry to hear about your unfortunate suspension - at least it's temporary.


One way to add additional payments to the contract is to give a bonus to the freelancer. To quote from Upwork FAQ:

 

Add a bonus (optional)

To make a bonus payment (not connected to a milestone):

  1. Go to Freelancers and select My Freelancers.
  2. Choose Give Bonus in the Actions menu for the contract (or the button on the contract details page).

If you choose to add a bonus to your milestone payment or give a bonus between milestones it will be processed like a bonus on an hourly contract. That means it will be invoiced to your account immediately (making your balance go negative), but be paid as part of the daily batch. All hourly and bonus payments will be charged in a single lump sum to your billing method each day, rather than individually and immediately like the escrowed milestones. The bonus will immediately appear as pending on a freelancer's account and become available after the standard five-day security period.

 

So, if the contract is hourly - just add manual hours; if it's fixed - request payment through a bonus payment.

 

Hope this helps 🙂

 

Thanks for the response! That's really helpful. Basically I have to ask the client to add it. Does this mean that Upwork will get a % over the bonus/expense then? That's something we have to calculate in so that the amount I get is actually what I paid for the license. Or perhaps it would make more sense to have the client themselves buy the license and simply forward me the details. Would that be within the policy?
yitwail
Community Guru

Co, both methods are permitted, but in the case of a bonus payment, there's still a security period during which the amount of bonus is pending but not available, so if the client needs to have the project completed as soon as possible, then the client should purchase the license then provide it you. Conversely, with bonus payment, the amount would have to be increased to offset the 10% Upwork fee, so the client would also save money by buying the license directly instead of paying you to buy it with a bonus.

__________________________________________________
"No good deed goes unpunished." -- Clare Boothe Luce

Thanks for that!

 

I know what to do now. Both your feedback has been invaluable!

 

 Edit: Invaluable seems ambiguous. Of course I meant that it has been of great value!

vladag
Community Manager
Community Manager

Hi Co v,

 

I'd like to reiterate that freelancers should only receive payments through Upwork. Paying and receiving payment outside Upwork is against our policy, and carries a penalty for all parties involved. This policy is there to keep Upwork secure and to protect both freelancers and clients. 

 

We do encourage members to report freelancers or jobs that offer or seek payment outside our system.

 

Untitled

 

Thanks. That's very helpful.

Depending on the situation, you might not worry about getting a client to pay for expenses.

 

Last month I was working on a project for a client and I could see that I wouldn't be able to work with his data unless I purchased some software. I just bought it with my own money and didn't say anything about it. The software cost $50 but the client paid me a couple thousand dollars. So the cost of the software is just a minor cost of doing business.

 

The software I purchased was generic, not specifically associated with the client's project. He simply needed help with a DBMS that I had not been working with and didn't have current software for.

 

Now... If I needed software for a client's specific project, and I was not willing to absorb the cost myself, then the first thing that I would think of doing would be to explain the need to the client and ask him to buy the software and send me the license. That would be preferable to having to be reimbursed. It absolutely IS POSSIBLE for clients to reimburse contractors for expenses, but Upwork takes a commission on the payments, so I think it is better to get the client to pay for software directly and send the license/software when possible, rather than go the reimbursement route.

What if the expenses are big? For example for air travel, and international air travel for example?

The problem of getting paid through manual hours or a bonus is that that income becomes taxable income. So it becomes a lot more expensive to get paid this way. Ideally, the client could purchase the tickets but what's been everyone's experience?


@Ivan S wrote:

What if the expenses are big? For example for air travel, and international air travel for example?


 Get the client to book and pay for stuff like that, and I would hazard a guess that very few freelancers on Upwork do much international travel in the course of their contracts.

 

My main contract involves yearly international travel. The client pays for hotel / meals etc directly (to the hotel / restaurants etc) and I get reimbursed for the travel costs via expense payments.

 

It does become taxable income but you can claim it back as a business expense so it makes no difference.


@Ivan S wrote:

What if the expenses are big? For example for air travel, and international air travel for example?

The problem of getting paid through manual hours or a bonus is that that income becomes taxable income. So it becomes a lot more expensive to get paid this way. Ideally, the client could purchase the tickets but what's been everyone's experience?


 There is no difference in the ultimate tax impact. If the client buys the software license (or whatever) it's not income. If the client reimburses you for the software license, the client may report that as income to you, but you have a business expense in an identical amount, netting out to zero.

Thank you for both of your replies.

If using the Expenses bucket I see no issue with taxable income. But in my opinion getting reimbursed for travel/lodging or for that matter any expenses through manual hours and bonuses is wrong and not tax wise.

I don't know how it is in other countries but in the US most income is reported on the same form. So to the IRS (tax authority) it doesn't matter if that income was actually an expense, it's still income. Yes, you can can reimbursed for expenses for work with IRS but it shouldn't be mixed up with your regular hourly/fixed rate income you have on Upwork. These are two completely different buckets. Having said that I still haven't filed income from Upwork with IRS so I haven't seen any tax forms from Upwork yet.

What Tiffany is talking about with offsetting would work only if the mixed income/expenses don't show up on the same tax form from Upwork.


@Ivan S wrote:

 

What Tiffany is talking about with offsetting would work only if the mixed income/expenses don't show up on the same tax form from Upwork.


 No, Ivan--the offsetting comes into play exactly when the income is mixed. Say you have $500 in earned income and $300 in reimbursement. You report the $800 in gross income, then deduct a business expense for $300 for whatever you were being reimbursed for.

tlbp
Community Guru

Do we get any tax forms from Upwork? I just used my own income figures. 

No, Upwork doesn't send any tax forms. You can generate earning reports from the Reports tab, but the company has positioned themselves as a third party agent, which means they're not responsible for sending you any kind of form unless you meet very specific qualifications. Your clients are also NOT required to send you any kind of tax forms when they hire you through Upwork - they're paying for a service, not employment.


@Ivan S wrote:

Thank you for both of your replies.

If using the Expenses bucket I see no issue with taxable income. But in my opinion getting reimbursed for travel/lodging or for that matter any expenses through manual hours and bonuses is wrong and not tax wise.

I don't know how it is in other countries but in the US most income is reported on the same form. So to the IRS (tax authority) it doesn't matter if that income was actually an expense, it's still income. Yes, you can can reimbursed for expenses for work with IRS but it shouldn't be mixed up with your regular hourly/fixed rate income you have on Upwork. These are two completely different buckets. Having said that I still haven't filed income from Upwork with IRS so I haven't seen any tax forms from Upwork yet.

What Tiffany is talking about with offsetting would work only if the mixed income/expenses don't show up on the same tax form from Upwork.


(reposting as my original reply seems to have disappeared into the ether...)

 

There is no tax form from Upwork. They are a third party agent and are not required to send you anything. No 1099, certainly not a W2, not even an official report. It's your responsibility to track your own numbers. You can download an earnings report from the Reports tab, but it's still up to you to make sure it's accurate.

 

So for your total income, you have one lump sum amount from whichever method the payment comes through the site - all payments from fixed-price, bonuses, tracked hours and manual hours end up in your bank account the same way. Even if they did send you a 1099, the total income would include all of this.

 

So if your client pays you a bonus for an expense, that number is in your total income number.

 

But then on your tax forms you enter all of your expenses, including the cost of whatever it is you bought and were reimbursed for. You subtract those expenses from your earnings, and that number is your profit or loss - and that is the number the IRS calculates your tax on for self-employment. The expense vs. reimbursement washes out to zero, and is not reported as taxable.

 

If it's helpful, think about the fees scenario. Upwork charges your client your full hourly rate, and then deducts fees. You only receive the amount after the fees. You can choose how to report this on your taxes - the total number minus the fees as an expense, or just the number that hits your bank account. They both add up to the same thing, tax-wise - you're not taxed on the fees amount.

Upwork does send you tax forms if you are eligible (have earned over $ 20,000 over 200+ transactions in that year.

 

There is also a specific payment type for expense reimbursement available for clients. Because this is subject to the Upwork fee too it is better if the client pays for whatever expenses are incurred directly to the vendor. (by booking hotels / plane tickets etc themselves)

 

Tax-wise it makes no difference as both the expenses (if paid by the freelancer and reimbursed by the client via Upwork as expense payments) and the Upwork fees are business expenses which can be claimed,  so for the freelancer it works out the same.


@Petra R wrote:

 

There is also a specific payment type for expense reimbursement available for clients. Because this is subject to the Upwork fee too it is better if the client pays for whatever expenses are incurred directly to the vendor. (by booking hotels / plane tickets etc themselves)


Interesting that Vladimir didn't mention this option. How does a client get to it?


@Jess C wrote:

@Petra R wrote:

 

There is also a specific payment type for expense reimbursement available for clients. Because this is subject to the Upwork fee too it is better if the client pays for whatever expenses are incurred directly to the vendor. (by booking hotels / plane tickets etc themselves)


Interesting that Vladimir didn't mention this option. How does a client get to it?


expense.jpg

It is not helpful for  UpWork to take a service fee for reimbursement of expenses.  I'm not talking about paying freelancers for their work.  That, of course, is critical and a necessary part of freelancing.  But I should be able to repay a freelancer for a software license that they purchased upon my request.  I shouldn't have to pay more for my freelancer to break even. 

vclwiedemer
Active

I was just discussing this issue with a client. I thought of the just post manual hours work-around, but the client mentioned that solution would be difficult for accounting purposes. But it looks like there is an expense-reimbursement from the client side, so that should be the way to handle this issue. It's just not obvious anywhere that it has to be done by the client and not the freelancer.

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