The Self Employment Tax Hub (2023)

Last udpated December 15th, 2022

Taxes can be confusing and frustrating, and that's especially true if you're self-employed. Don't worry. Once you understand the basics, and become familiar with a few best practices, it's not so bad. We hope this set of resources will make self-employed taxes a little more understandable and maybe even save you a bit of money — and who doesn't like that? These resources are specific to the United States, but we hope to support other countries in the near future.

Here are quick links to our top 3 resources:

Self-Employed Tax Calculator

Calculate how much you owe given your state, income, expenses, and more.

Tax Deductions by Work Type

Lists of common deductions by work type (e.g., designer, photographer)

Free Ebook: Self-Employed Taxes 101

Everything you need to know about self employed taxes in a free ebook.

What’s the Self-Employment Tax?

As a freelancer, you still need to pay your usual personal income taxes. However, in addition to that, you need to pay self-employment taxes. This covers two things:

  1. Social Security Tax
  2. Medicare Tax

This is the tax amount paid on earnings from a sole proprietorship or partnership business that goes to Medicare and Social Security; it is also referred to as SECA. Since you are your own employer, you do not have a boss to take out (or withhold) this money from your check, so you must pay it yourself at tax time. You also pay at a higher rate than a traditionally-employed person, because you have no employer to pay part of the taxes for you.

If you're an employee you typically don't have to worry about these things. Your employer sets the money aside on every paycheck, and then you settle up at the end of the year. But now things like Social Security and Medicare taxes are entirely your responsibility to track and pay.

"I only freelance part-time. I still have a full-time job! Does this still apply to me?"

The answer is: yeah, probably. If you make more than $400 a year as a freelancer, you're subject to self-employment tax — but only for your self-employed income (money via 1099, not W-2).

Remember: this is in addition to, and completely separate from, your personal income tax.

Should I be paying taxes as a Freelancer?

The Internal Revenue Service requires that all freelance income above $400 a year be reported, and that profit from income made as a freelance (or independent contractor) be subject to the appropriate tax rate. This means that you should count earned income in the form of cash, check, PayPal payments, or other methods of compensation and include it on your schedule C form. It doesn’t matter if you received a notification or statement of earnings from a company documenting your pay; not all earnings will trigger a tax form, so you need to be tracking all earnings on your own.

What you pay taxes on, however, will depend on the formula of business earnings minus business expenses (which gets you to your magical “profit” number.) You will only be taxed on that profit. It’s also wise to know what your tax liability is each year, and see if you may be required to make estimated quarterly tax payments. Generally, if you don’t think you’ll owe more than $1,000 in taxes – after subtracting federal income taxes – you probably won’t need to make quarterly payments.

Understanding the 1099 Tax form

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If you need some help filing your freelancer taxes, follow this guide with step-by-step 1099 instructions. An experienced tax accountant will walk you through everything you'll need to be aware of when you are filing your 1099.

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If you are an oilfield worker, you'll want to save the proper business receipts for when tax season rolls around. But what deductions can you claim? In this article, we'll go over the top 17 tax deductions an oilfield worker would qualify for.

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If you need more time to meet the IRS filing deadline, this article will go over exactly how to request a 1099 extension. We'll tell you what form you'll need to file, how to avoid penalties, and much more.

How is Self-Employment Tax Calculated? Try our FREE calculator

The Self-Employment tax is calculated on 92.35% of your total income. This rate is derived from the fact that self-employed taxpayers can deduct the employer's portion of the tax, which is 7.65%.

The tax rate is currently 15.3% of your income, with 12.4% going to Social Security and 2.9% going to Medicare. The Social Security portion has a limit on how much of your income is taxed (currently $127,200 or less), whereas the Medicare portion does not. You must pay this tax if you’ve made money from your freelance business of $400 or more.

Just how much will you owe, exactly? We built a free self employment tax calculator to give you an estimate of exactly that. Give it a try!

What’s the Medicare Tax?

This portion of the tax freelancers pay goes to fund the federal government’s Medicare program. It is used to provide subsidized health care and programs to retired Americans and to disabled individuals. Money from the Medicare program also subsidizes hospital insurance benefits. So, when you pay your self-employment tax, less than 3% of that money is going to this program.

What’s the Social Security Tax?

Similar to the Medicare Tax, this is a portion of your self-employed tax that supports another government program – specifically, the Social Security program. Social Security is known for the cash benefits it provides to seniors, but it also plays a role in supporting the disabled and surviving spouses and children. One important thing to note is that Social Security Retirement Benefits are based on your highest 35 years of earnings in a lifetime. Your freelance income is counted into this formula; the more you make and report as a freelancer, the closer you’ll be to maxing out Social Security retirement benefits later in life

Should I be paying Income Taxes on top of my Freelance Tax?

Yes. It’s very important to understand that you will always pay self-employment taxes (those that contribute to the Social Security and Medicare programs) as long as you make more than $400 in a given tax year. You may also pay income taxes, which are figured out differently for different earning brackets. Since you will pay both income and self-employment taxes on profit made from your freelance business, it is beneficial to try to claim every legitimate business-related expense you can.

One other important rule of thumb is this: While those working for an employer can avoid even filing taxes if they make below the filing threshold, this is because they have money withheld from their paycheck to cover the Social Security and Medicare taxes (referred to as “FICA” when paid through your employer.)

Since freelancers really have no easy way to withhold these taxes, they must pay them at the end of the year on a tax return, even if they made very little. Remember, anything earned over $400 will require you to file and pay the self-employment taxes -- regardless of whether you’ll owe actual income tax.Now, let's move on to the next thing you should put on your radar: quarterly estimated taxes.

What’s the Medicare Tax?

This portion of the tax freelancers pay goes to fund the federal government’s Medicare program. It is used to provide subsidized health care and programs to retired Americans and to disabled individuals. Money from the Medicare program also subsidizes hospital insurance benefits. So, when you pay your self-employment tax, less than 3% of that money is going to this program.

What’s the Social Security Tax?

Similar to the Medicare Tax, this is a portion of your self-employed tax that supports another government program – specifically, the Social Security program. Social Security is known for the cash benefits it provides to seniors, but it also plays a role in supporting the disabled and surviving spouses and children. One important thing to note is that Social Security Retirement Benefits are based on your highest 35 years of earnings in a lifetime. Your freelance income is counted into this formula; the more you make and report as a freelancer, the closer you’ll be to maxing out Social Security retirement benefits later in life!

Understanding the tax forms

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If you are looking for a guide on how to track business expenses for small business owners, then you are in the right spot. Follow these 6 simple steps to track expenses and save money on your taxes.

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If you are looking for a free expense tracker template, Bonsai has your back. Use our free tool to track your expenses, income and tax deductions. Our sheet was made from a certified accountant to provide you with everything you need.

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Discover all there is to know about taxes on consulting fees. Independent consultants can use our 6 tip guide to be prepared for the 2020-2021 tax season and save money!

What are tax deductions?

If you have filed your taxes before, you may gave noticed that you have "write off" or deduct certain expenses from your taxes to reduce your overall tax burden. One of the silver linings of 1099 self employment is that your work allows you to write off or deduct even more expenses that are specific to your work.

Some of these tax write-offs may seem small, but they can add up quickly, making them worthwhile to track. After all, each time you write off an expense, you lower your self employed taxable income. That means less tax paid, helping replace the money you spent on your business and putting it back in your pocket.

Below is a list of common expenses that most self employed 1099 workers can deduct from their taxes. As with anything financial or tax-related, there is some nuance to what and how much you can write off, so be sure to consult with an expert. Our expense tracker will help you capture all the most commonly missed tax deductions.

Designers

1.  Software subscriptions
2. Ongoing training costs
3. Payment processing fees

Writers

1.  Office supplies
2. Co-working space rental
3. Portfolio website expenses

Photographers

1.  Home office costs
2. Equipment expenses
3. Sub-contracting/assistant expenses

When are self-employment taxes due?

New calendar alert!

If your freelance work generates a substantial portion of your income, the way you pay your taxes will change. Instead of punching in just once a year, you'll need to make estimated payments every quarter.

Hang in there. You've got this.

Yes, estimating your taxes can be a little tricky sometimes, but you just have to do your best. In fact, the IRS provides a worksheet to help you figure it out, which you can find on their website: Form 1040, Schedule SE.

Here's the basic rundown on this form. You'll be filling it out based on an estimate of your current income. A good starting point is to use your tax return from last year. Take a look at how much you previously paid in taxes, as well as any credits or deductions you logged.

So: keep good records! By comparing last year's numbers to this year's numbers, you should be more or less on track. Use the worksheets on Form 1040, Schedule SE, and pay what seems about right. Then, at the end of the year, you'll figure out if you over-paid or under-paid (kind of like you've always done with your personal income taxes). If you paid too much, the overage will simply be applied to your taxes next year.

You can also enroll in The Electronic Federal Tax Payment System (EFTPS). This allows you to pay your estimated quarterly taxes electronically through the magic of the world wide web, directly from your bank account.

No matter how you go about it, start setting aside a portion of each paycheck to cover your self-employment taxes. If you don't meet your quarterly payments, you could be subject to penalties and interest!

Why should you opt for a self employment tax software?

Here's the thing: everyone's taxes and expenses will be different, and there's no one golden rule book on how to make it all work. It's one of the things that's been most challenging about being a full-time freelancer. While I may feel confident in my craft, it's taken time to learn how to run a business. That's a completely separate skillset.

It can get a little complicated at times and you may want to pull in some professional assistance. Ideally, consult with an accountant who specializes in freelancers so they can give you guidance that's hand-tailored to what you do.

No matter how you go about things, make sure you have a reliable system that keeps you anchored throughout the year. Trust me, you'll be glad you did. By getting your books straight now, you'll avoid potential messes later on. If you think self employment taxes are complicated, just imagine dealing with an audit.

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