A Guide to
Self-Employment Taxes
If you work for yourself and don't call anyone your boss, you're likely self-employed. This carries advantages, like not having a manager and deciding your own hours. But it also comes with trade-offs, like paying the self-employment tax and paying for your own employee benefits.
What occupations qualify as
self-employment?
Some examples of self-employed occupations include:
Freelance
journalists
Independent
photographers
Ride-share
drivers
Contract delivery
workers
And usually, jobs where you ...
Provide your
own equipment
Work at your
own direction
Choose your
own hours
Being self-employed and being an employee aren't mutually exclusive. You might work a day job and pick up side jobs as a freelancer or independent contractor.
Tax Obligations if You're
Self-Employed
Self-employment comes with a different tax situation
than working as an employee. You'll need to ...
Track your business-related income and expenses.
You need to claim all of your business income. Some or all of your expenses may be tax deductible.
Pay the self-employment tax.
This includes the employee and employer portions of Social Security and Medicare taxes. Fortunately, you can deduct your employer portion for calculating your taxable income.
Likely make tax payments on a quarterly basis.
This replaces the timely withholding an employer would do on your behalf. If you simultaneously work for an employer who withholds taxes for you, you can adjust your Form W-4 and ask them to withhold additional money from your paycheck to cover your self-employment taxes.
Budgeting for Taxes
You can calculate your marginal tax rate and find out approximately how much tax you’ll owe for the year. Estimate your tax rate and set aside at least that much for income taxes. Set aside income for self-employment taxes, too. For example:
If your marginal tax rate is
22%
and self-employment taxes come to
15.3%
set aside at least
38.3%
of your net income from self-employment.
You'll divide up and pay this balance each quarter over the course of the tax year. Send the IRS your quarterly payments by:
Other Tips
Track your income and expenses throughout the year to calculate your total tax liability.
Just because you don’t receive a Form 1099-NEC from someone doesn’t mean that you can go without reporting the income.
If you paid for services as part of your work, you might need to send 1099s reporting your payments.
