3 Things You Must Do When You Switch From Freelance to a Full-Time Job
Switching from freelancing to full-time work can be a lifestyle adjustment — you no longer have full control over when you work, how often you work and what projects you take on. On the positive side, it also means a level of financial stability that you may not have had before.
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Making the switch can also affect aspects of your finances and planning that go beyond receiving a regular paycheck. Here’s a look at what you should do to stay on track with your long- and short-term financial goals when you become a full-time employee.
Build Up an Emergency Fund
“While switching from a freelancer to a full-time W-2 employee can provide income stability and predictability, it eliminates income diversification,” said Laura Gariepy, freelance coach and creator of Before You Go Freelance. “As a freelancer, you presumably have multiple clients, so when one of those professional relationships ends, you still have money coming in. But if you get laid off or fired from your traditional job, your income stream dries up completely.”
Because of this, it’s essential to have a well-funded cash reserve that you can tap into in the case of job loss to cover your expenses.
“It may also be a good idea to retain a couple of freelance clients as a side hustle, if your employment agreement permits,” Gariepy added. “That way, you can preserve your nest egg if you lose your job. Plus, keeping one foot in the freelance world can help you fully re-enter it later if you decide to switch back.”
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Take Advantage of Your Employee Benefits
As a full-time employee, you may now have access to benefits that can help you plan for the future, save money and increase your future earning potential. Many of these require you to actively enroll, so make sure you look into the programs you are eligible for and take advantage of as many as you can.
“These may include 401(k) retirement matching contributions, paid time off, health insurance, parental leave, a home office stipend, a commuting stipend, free training programs, paid opportunities to attend professional conferences and more,” said Todd Stearn, founder and CEO of TheMoneyManual.com.
Be Prepared for Tax Changes
There are a number of changes to your tax situation that can occur after making this switch, including the deductions you are eligible for, how often you pay taxes and how much you pay in taxes.
“If you discontinue all freelance work you may no longer be eligible to take deductions for business owners,” Stearn said. “As a freelancer, you can often take deductions for your home office rent, electric [bill], Wi-Fi and other expenses related to growing your business. However, a freelancer also pays self-employment taxes. That’s 15.3% in federal tax to cover Social Security and Medicare. Full-time employees pay half of that because their employer is responsible for the other half.”
In addition, you no longer need to worry about quarterly estimated taxes.
“Typically, as a freelancer, you are responsible for paying your taxes; they’re not withheld like with full-time employment,” Stearn said.
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