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

tlsanders
Community Guru
Tiffany S Member Since: Jan 15, 2016
11 of 23

@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.

3d28c4e3
Active Member
Ivan S Member Since: May 26, 2017
12 of 23

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.

tlsanders
Community Guru
Tiffany S Member Since: Jan 15, 2016
13 of 23

@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
Tonya P Member Since: Nov 26, 2015
14 of 23

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

jcullinan
Community Guru
Jess C Member Since: Feb 18, 2015
15 of 23

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.

jcullinan
Community Guru
Jess C Member Since: Feb 18, 2015
16 of 23

@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.

petra_r
Community Guru
Petra R Member Since: Aug 3, 2011
17 of 23

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.

jcullinan
Community Guru
Jess C Member Since: Feb 18, 2015
18 of 23

@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?

petra_r
Community Guru
Petra R Member Since: Aug 3, 2011
19 of 23

@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

430402be
Active Member
Reggie Y Member Since: Sep 14, 2017
20 of 23

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. 

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