Freelance Design Rates - changing rates with taxes

So I am not a graphic designer full time. I constantly use my skills in every job I am in and even volunteer my skills for a nonprofit quite often. Because of my involvement on the side as a designer and especially through my nonprofit contributions, I’ve been getting a lot of paid design jobs via word of mouth lately. The projects are actually piling up and I’m now working 60-80 hours a week between my full time and freelance work. It’s not ideal but I really need the money so I can’t turn it down. Plus, it comes in waves.

My problem is that before this new client reached out to me, she asked for my rates and I was being very generous especially with the referral and because I wanted her to keep me on for new projects - the referral was also a nonprofit so I was afraid shooting too high would cost me the job. Remember - I don’t do this full time so I’m not even sure what standard rates should be for a designer these days. I found out later and a little too late that they have a pretty adequate design budget from the client who referred me. Today, I just got W-9 forms and did not originally anticipate charging enough to cover taxes. So, now I feel like I shot myself in the foot with my rates.

Do I go back and remind her that my rates don’t cover taxes and I may need to bump up if I am “on the books” and getting as much work as she is now saying she wants to give me? The freelancing is to help with medical bills that my full time job is not sufficiently covering so paying out on this at the end of the year is going to kill me. Of course, working so much overtime is really not ideal either. Ugh, I’m just feeling a little panicky as I am getting back into freelancing as a designer.

Earning income requires paying taxes.
Just like charging money for freelance work is a business that pays taxes.
Sorry to hear you are finding this out the hard way.

Never low-ball your rates.
It’s going to be very hard to go back now and change your rates, and if you admit to not covering taxes, that doesn’t say much about you as a business professional either.

And maybe before you get too much farther into this, find out what is required in your location to run a small business. Most states have that kind of info on their Dept of Treasury websites or similar. Small business admin State Name should do it.

I pay plenty of taxes. I have a full time job. I don’t normally get enough design work to declare them on my taxes - there is a threshold where you are not responsible for taxes. I am normally under that threshold. The amount of work that I am getting all from word of mouth lately was unexpected.

Yes, I am worried about mentioning I usually work under the table or how it might come off. But as I said before, a lot of these businesses that reach out to me are all through non profits and many of which I volunteer my time as a designer without pay. I am plugged into these communities as an advocate for having the same medical issues that I am offering my time to build awareness towards. So, now when paying jobs are coming along I have no idea where my hourly rate should be.

In the U.S., unless the law specifies otherwise, (which it doesn’t in this case), income is taxable. Depending on which state (I’m assuming you’re in the U.S.), you might even be responsible for collecting and paying sales taxes, although many states exclude design services unless a physical product changes hands.

Freelance work, despite it being a side thing, is a business and needs to be run as a business with fees that factor in all the expenses — including taxes.

Since she’s asking you to fill out a W-9 (as required by federal law), it also means that she will report how much she paid you during the tax year to the IRS. The IRS will expect the amount your client charged to also appear on your taxes, and they’ll have records from both of you. They need to match or they’ll send you a letter saying you owe them money in addition to a fine.

As for the dilemma you’re finding yourself in, if you want to keep this person as a client, I wouldn’t tell her you didn’t realize you needed to pay taxes. That would send the wrong signal.

Instead, you might tell her that your initial rate was for a one-time project referred to you by a non-profit that you care about. For ongoing work, you’ll need to charge your full rate. Then apologize for the misunderstanding and say you’ll understand if she goes elsewhere (don’t go overboard on the apology). Unfortunately, there’s not an easy way out of this one. If she balks, you probably don’t want her as a client, anyway.

For what it’s worth, I never give prospective clients a fixed rate. When they ask, I tell them that I determine my fees on a case-by-case basis due to all the differences between one job and the next.

If you think about it, giving a prospective client an hourly rate doesn’t make much sense. For example, I might charge three times as much as the next guy, but because of my experience, I might be able to get it done in a third the time as the inexperienced guy who charges a third as much.

Rather than an hourly figure, I determine a fee for the project after I fully understand what’s involved, how much time it will take, what the value of the work might be for the client, and whether or not I’m eager to do the work. In my head, I might figure that I need to make $XXX per hour when it’s all said and done, but I never tell my client that fuzzy figure that I’m aiming for except in those relatively rare situations where the client insists that I bill them per hours worked.

In addition, don’t forget the written contracts that spell out exactly what you’ll be doing and how much you’ll be paid. Anything that doesn’t fit within the contractual terms requires a change order and will incur an additional fee. Remember, freelance or not, you’re running a business.


I’m not a tax expert, but if we pay a freelancer we have to 1099 them regardless if they get more or less than the magic number of $600 (at least that’s what it used to be.) If someone is paying you more than $600 (or whatever it is now) they have to send in the info to the tax authorities or they would be in trouble with the IRS themselves.

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Yah, that’s most likely on the people that have used me. None of them have actually ever had me fill out anything; just wrote me a check. But I was absolutely under the magic number up until 6 months ago. I really was not doing any of this for profit or much profit at all. I am struggling with my full time and need to take on the additional jobs so I just have to rethink all of this now. Thank you for your input.

You’re right. I can’t really go back on this one. But I sincerely appreciate your advice as it is helpful for future clients. I am going to discuss all with her today on a call and see about setting up a contract for work - minus the taxes part; it’s way too tacky and unprofessional the more I think about it. I tried to match the same offer I made for the client who referred me - which was a nonprofit. And in doing that, I actually already discussed how I could work with her budget on multiple jobs to help her out so I am screwed there. I wrongly assumed that they would have such a tight budget as the clients who referred me did.

I did, however, tell her that if I have to use any of my skills outside of simple design, that my rates go up – such as photography. And I’ve provided hourly estimates for the jobs that she has me set to work on so there is an idea of my rate x hourly process. Maybe I didn’t shoot myself in the foot…maybe it all works out.

You know, there is a silver lining to this. It’s a lesson learned about something that will pay off in the long run. I’ve had plenty of those expensive but very beneficial learning experiences. :grinning:

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ha - if you say so! :slight_smile: If it was one project, I would just eat it, really and say “lesson learned”. But because all the future projects from here on out rest on my rates here, this one is going to haunt me for quite some time. She has me backed up for design projects all the way through December. At one point during our consultation, she started talking about wanting to hire me full time. She was getting ahead of herself but I think she liked my approach in how I worked with her to completely reorganize a PowerPoint presentation. It was a hot mess of just text on text on text on top of a gradients. I had to restructure her entire approach before I could even start designing it - 4 hours of consultations and 24 hours of design and copyediting. I think I’m doing this entire freelance thing wrong. :weary::sweat_smile:

You might want to get a copy of The Graphic Artists Guild Handbook of Pricing and Ethical Guidelines. It explains a lot about the business side of design and also has sample contracts.

I assume you are in the US… I’d suggest making an appointment with a tax preparer asap. Tell them they will be preparing your returns in March but you’d like to make sure you have everything organized and set up correctly now, so it is easier for them.

Long term, it works to your advantage to set up an official business and be paid in a legitimate manner. As a freelancer working from home, you can deduct a portion or rent/mortgage, electric, internet, phone, heating. The cost of software, fonts and stock is deductible. The cost of your computer and peripherals is at least a partial write off. Are you driving a car as part of your business? That’s 58.5 cents a mile you get to claim. You don’t get any of this if you are volunteering or being paid under the table.

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Are you qualified? Do you know what you bring to the party adds value? Your rates also have to take this into account. If you are self-taught and your experience is the odd freelance job on the side, your worth cannot be tha same as someone with 25 years of experience and a degree to back it up.

That said, whatever level you are at, you are not running a side-shizzle. You are running a business and you need to get serious about it, otherwise, one day, the big brown envelop will drop onto your doormat.

Well noted. Thank you for the tips!

I have a degree in design, yes. Not that it matters as my professor didn’t know any of the software. That is a true story, unfortunately… So, I am also self taught despite my degree. I have had both contract paid freelance jobs and full-time salary design jobs. I just haven’t been in the field full-time in almost 10 years as I was recruited into a different industry and that position offered more money at the time. I never stopped designing for whatever career I had though. It really has been one of the most useful skills that I have been able to use in so many positions not related to a graphic design position.

I’m not worried about the big brown envelope for past work; it was either volunteer work or for very little money. But with the upswing of clients I am recently getting and being told that they have passed my information to others, I think I’m going to take Mojo’s advice and reach out to a tax preparer now. I do have an LLC already, making CBD topicals - also, all word of mouth for people in pain. It’s not much money but I always file my taxes regardless because it is an LLC. Not a bad idea to seek a tax accountant moving forward since my income is getting a little convoluted.

Yikes! Sounds nearly as ‘good’ as my university education… and I thought I’d mastered finger painting at kindergarten :thinking: :laughing:.

Depending on how much revenue you’re talking about my recomendation would be getting an accountant to sort for you.

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