Complete guide to self-employment taxes for freelancers and side hustlers. Learn about 1099 taxes, quarterly payments, deductions, and how to save money on self-employment tax
So you're making money on the side—congrats! Whether you're driving for Uber, freelancing on Upwork, selling on Etsy, or consulting, welcome to the world of self-employment. But here's what nobody told you when you started: self-employment taxes are WAY more complicated (and expensive!) than regular employee taxes.
Don't panic! I'm going to walk
you through everything you need to know about self-employment taxes, from what
you owe to how to pay it to what you can deduct. By the end, you'll understand
exactly how to handle your 1099 taxes like a pro.
What is Self-Employment Tax?
Self-employment tax is
basically Social Security and Medicare tax for people who work for themselves.
When you're an employee, you pay 7.65% and your employer matches it. But when
you're self-employed, you pay BOTH halves—the full 15.3%!
Here's the breakdown:
•
12.4% for Social Security on the first $168,600 of
income (2026)
•
2.9% for Medicare on all income
•
Plus 0.9% additional Medicare tax on income over
$200,000 (or $250,000 married)
This is ON TOP of your regular
income tax! So if you're in the 22% tax bracket and self-employed, you're
really paying 37.3% total on that income. Ouch.
Who Needs to Pay Self-Employment Tax?
You need to pay self-employment
tax if you had net earnings from self-employment of $400 or more. This
includes:
•
Freelancers and independent contractors
•
Gig economy workers (Uber, DoorDash, TaskRabbit, etc.)
•
Small business owners and sole proprietors
•
People with side hustles earning over $400
•
Online sellers, consultants, coaches
•
Anyone who received a 1099-NEC or 1099-K
Understanding Your 1099 Forms
If you're self-employed, you'll
receive 1099 forms instead of W-2s. The most common is the 1099-NEC
(Nonemployee Compensation), which shows how much clients paid you. You might
also get a 1099-K if you were paid through payment platforms like PayPal or
Venmo and processed over $5,000.
Important: Even if you
don't receive a 1099, you still need to report and pay tax on that income! The
$400 threshold applies to your total self-employment income, not individual
clients.
Quarterly Estimated Tax Payments
Here's the kicker: you can't
just wait until April to pay your self-employment taxes. The IRS wants you to
pay as you go, just like employees have taxes withheld from paychecks. You do
this through quarterly estimated tax payments.
Payment deadlines for 2026:
•
Q1: April 15, 2026
•
Q2: June 16, 2026
•
Q3: September 15, 2026
•
Q4: January 15, 2027
How to Calculate Quarterly Payments
1.
Estimate your annual self-employment income
2.
Subtract business expenses to get net profit
3.
Calculate 15.3% for self-employment tax
4.
Add your income tax based on your tax bracket
5.
Divide by 4 for quarterly amount
Pro tip: Set aside 25-30% of
every payment you receive for taxes. Open a separate savings account just for
tax money and transfer it immediately!
Business Deductions That Save You Money
The good news about
self-employment? You can deduct business expenses! This reduces your taxable
income significantly. Common deductions include:
Home Office Deduction: If
you have a dedicated workspace, you can deduct a portion of rent, utilities,
internet, etc.
Vehicle Expenses: Mileage
for business driving at 70 cents per mile (2026), or actual expenses like gas
and maintenance
Equipment and Supplies: Computers,
software, tools, office supplies
Professional Development: Courses,
books, conferences related to your business
Business Insurance: Liability
insurance, professional insurance
Marketing and Advertising: Website
hosting, business cards, ads
Professional Services: Accountant
fees, legal fees, bookkeeping
Phone and Internet: Business
portion of your phone bill and internet
Health Insurance: Self-employed
health insurance premiums are deductible!
The QBI Deduction: A Hidden Gem
If you're self-employed, you
might qualify for the Qualified Business Income (QBI) deduction, which lets you
deduct up to 20% of your net business income! This is HUGE and often
overlooked.
For 2026, you can take the full
20% deduction if your taxable income is under $191,950 (single) or $383,900
(married). Above those thresholds, it starts phasing out.
Record-Keeping: Your Best Friend
Good records are essential for
self-employment taxes. Here's what you need to track:
•
All income received (even if you don't get a 1099)
•
Every business expense with receipts
•
Business mileage in a log
•
Home office square footage and total home size
Use apps like QuickBooks
Self-Employed, FreshBooks, or even a simple spreadsheet. The key is
consistency—track everything as it happens, not at tax time!
Common Mistakes to Avoid
Not paying quarterly taxes: This
results in penalties and a huge bill in April
Mixing personal and business
expenses: Get a separate bank account and credit card for business
Forgetting to track mileage:
This is one of the biggest deductions people miss
Not saving receipts: No
receipt = can't prove the deduction in an audit
Deducting 100% of mixed-use
items: You can only deduct the business portion
Frequently Asked Questions
Do I need to pay self-employment tax if I have a regular job too?
Yes! If you earn $400+ from
self-employment, you pay self-employment tax on that income regardless of your
W-2 job.
Can I deduct the employer half of self-employment tax?
Yes! You can deduct 50% of your
self-employment tax on your Form 1040, which reduces your income tax.
What if I can't afford quarterly payments?
Pay what you can. Any payment
is better than nothing. The IRS charges penalties and interest on underpayments,
but it's less painful if you've paid something.
The Bottom Line
Self-employment taxes are
expensive, but they're manageable if you plan ahead. Set aside 25-30% of every
payment, pay quarterly, track all expenses, and take every deduction you're entitled
to.
Yes, it's more work than having
an employer handle everything. But the freedom of self-employment and the tax
deductions available make it worthwhile for many people. Stay organized, stay
compliant, and you'll be fine!
Are you self-employed? What's
your biggest tax challenge? Drop a comment below and let's help each other
navigate this! And if this guide was helpful, please share it with other
freelancers and side hustlers.
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