Painless1099 Review: Automated Tax Management for Self-Employed Freelancers

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Managing your freelance finances isn’t easy. There's a lot of admin work that comes with being self-employed. There is good news though, as least when it comes to simplifying your freelance taxes. Painless1099 might be the answer you’re looking for.

Managing your freelance finances isn’t easy. You have to stay on top of things like taxes, financial emergencies and saving for retirement. Not to mention the daily tasks like completing client work on time, dealing with contracts and sending invoice.

My gawd, just reading all of that can make you feel overwhelmed. Can you relate? There’s a lot of admin work that comes with being self-employed.

There is good news though, as least when it comes to simplifying your freelance taxes. Painless1099 might be the answer you’re looking for.

What is Painless1099?

Painless1099 was started by the co-founders who also invented Coffitivity, so they have a soft spot for freelancers and independent contractors. Throughout the time of running Coffitivity they found that many of the freelance creatives in their community also struggled with the infrastructure and organization of their finances.

And so Painless1099 was born. Painless1099 automates the tax withholding process, much like your employer used to do when they held the funds out of your paycheck.

As you being setting up your account, Painless1099 creates a new bank account in your name and funnels all your freelance income into it. After withholding money for Social Security, Medicare and federal income tax, you’ll receive a transfer for the remainder of the funds.

Essentially they mirror the W-2 withholding process so you can use Painless1099 as an employer-of-sorts for your freelance paycheck. Currently, Painless1099 is only available for contractors who live and pay taxes within the United States.

How to use Painless1099 as a freelancer

Painless1099 is for freelancers and independent contractors who receive self-employment income. There’s no limit, or minimum, on the amount of money you need to make and setting up your Painless1099 account only takes a few steps.

You don’t need a credit card and there’s no free trial. You can get started today for free!

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1. Agree to the terms and conditions

Since Painless1099 is going to be working with your money, and opening a new bank account in your name, it’s important to agree to their terms. It only takes a few seconds to read over everything, then check the boxes to move onto the next step.

Every Painless1099 account functions just like a regular bank account and is FDIC insured so your money is 100% secure.

painless1099 get started

2. Enter your personal information

You’ll be prompted to fill in your legal name, mailing and physical address as well as your birthdate and phone number. You’ll also have to input your Driver’s License number and expiration date — make sure it’s still valid. This is all part of the information they need to confirm your identity.

3. Verify your identity

Because Painless1099 is opening a new bank account in your name, they are required by Federal Law to verify your identity using your Social Security number. Once I hit the “complete” button verifying your identity is pretty instant.

Please note that you will not see any “processing” type icon or anything indicating that the service is working, but it is processing everything in the background. Just be sure not to navigate away from this page as you will have to start the process over again.

painless1099 social security

4. Link and verify funding source

This next step involves linking and verifying the checking account where you’d like Painless1099 to send the rest of your money once they’ve withheld your taxes.

Choose the bank account you want to receive the transfer into and then you’ll have to go through the verification process. This involves verifying your bank account online or with a few small amounts that will be deposited into your account over the next few days.

painless1099 choose bank account

5. Choose your withholding rate

The final step in the process of setting up your Painless1099 account is to choose a withholding rate. This is the amount you want set aside to pay your taxes every quarter and it varies for every freelancer.

With Painless1099 you can choose from two different withholding methods:

  • Projected Withholding – The Painless1099 Projected Tax Rate takes current U.S. tax law, and creates an estimated withholding rate based on your projected annual income.
  • Fixed Withholding – If you already know the percentage of taxes you should be paying, you can choose the Custom Fixed Rate of withholding.

painless1099 withholding

When I filled out my information, such as filing status, dependents and the income expected to earn this year, Painless1099 suggests that I withhold 25.48% of each client payment. Which sounds about right!

painless1099 tax withholding

I always recommend that self-employed freelancers withhold no less than 20% of their total income to put towards estimated tax payments. However, depending where you live and other personal factors, you may want to set aside upwards of 30-40% to cover both federal and state taxes.

What does Painless1099 cost?

Right now Painless1099 is free to signup and you only have to pay a small 0.35% of each deposit that comes into your account. According to their website, this means that most of their users pay an average of $8 per month. However, they cap this fee at $125 per year so even if you earn more money you won’t have to worry about paying outrageous fees to use Painless1099’s service.

Please note: that you are also subject to Lincoln Savings Bank’s fees and term policies since this is who is housing your new Painless1099 bank account.

The plan is to keep the account fee very low until the platform gets to a point where they feel good about charging more money for it.

Their long-term plans are to include more services for freelancers to manage their finances better. This includes offering a Rainy Day or Emergency fund similar to how they handle the tax fund.

In addition, they want to help freelancers save and manage their future retirement funds. So we will see how this continues to play out.

painless1099 careful cents account summary

What would make Painless1099 better?

As someone who’s an advocate for your freelance finances, I always share the positives and the negatives with any product or service. With Painless1099, there are several major drawbacks you should be aware of.

New payment accounts have to be updated

As you send invoices to clients in the future, you have to update your payment account (in PayPal, Dwolla, WePay, Stripe, FreshBooks, etc.) to this new Painless1099 bank account. It has its own routing and account numbers.

Also, if your client has a direct deposit form on file for you, you’ll have to resubmit this form with the NEW banking information. You can download this form with your Painless1099 dashboard under the “resources” tab.

This is a minimal bit of hassle and may be worth it once all your client payment accounts have been switched over. At the moment, I’m not interested in contacting my 10+ clients to update their records for payment.

This sounds like a big headache, seeing as how most payroll departments are incompetent (IMHO as someone who used to work in the payroll dept).

Payments are delayed an additional 1-2 days

Once the tax portion of your freelance income has been set aside, the rest of the money will be transferred to the bank account you linked in step #4 above. This money transfer adds an additional 1-2 days business days for ACH processing before you’ll receive the funds in your bank account.

As a freelancer who deals with inconsistent income on a monthly basis, I’d rather not delay the money I receive by any more days than it has to be. I already have a helluva time trying to get clients to pay my invoices in a decent timeframe.

Estimated taxes are still your responsibility

Another drawback is that while Painless1099 does withhold the taxes from your client income like a traditional employer would, you’re still responsible for estimating and paying your own quarterly taxes.

This means that you still have to use the right bookkeeping software to estimate your tax payment, then log onto the IRS website and schedule the payment from your bank account (or Painless1099 account). So in this aspect, Painless1099 doesn’t automate the entire SE tax process.

Painless1099’s biggest competitor

In the past I’ve talked about how I use my Digit account to automatically set aside money for quarterly taxes. It takes a very small extra step, but I don’t mind since it’s very simple. Once a client pays an invoice I simply pull up my text messages to Digit and save 25% of that payment.

BOOM! Easy peasy.

Every quarter I calculate my estimated tax payments and schedule the payment from my bank account. I then send a text message to Digit requesting the same amount of money to cover the tax payment.

Plus, Digit costs $36 a year and I earn a small amount of interest, versus Painless1099’s 0.35% deposit fee.

I’m a bit more of a finance geek so I understand if you would rather not have the extra task of setting aside money for taxes yourself and would prefer Painless1099 to do it for you.

The nice thing about Painless1099 is that you can have a withdrawal from your account to the IRS directly. So you don’t have to worry about making a transfer and then paying the estimated tax from your business checking account.

I’m a bit of a control freak, though, and prefer to receive all of my income and then allocate a certain percent towards taxes. So for now, I will stick to my Digit account and use it for my freelance tax savings.

On the flip side, I’ll be keeping an eye on Painless1099 as I think they have a lot of great ideas to offer the independent contractor community. Plus, you can open a Painless1099 account for yourself today!

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