How to Pay Taxes as a Freelancer
As a freelancer, paying taxes may seem intimidating, but it’s a crucial part of running a successful business. Unlike traditional employees, freelancers are responsible for managing their own tax obligations, including paying income taxes and self-employment taxes. Understanding when and how much you need to pay, as well as the tax forms involved, can help you avoid penalties and ensure you’re meeting all of your tax responsibilities.
In this guide, we’ll walk you through everything you need to know about paying taxes as a freelancer—whether you’re filing for the first time or just looking for a refresher.
When and How Much Tax Do Freelancers Pay?
When Do Freelancers Pay Taxes?
Freelancers typically don’t have taxes automatically withheld from their earnings, which means it’s important to make estimated tax payments throughout the year. These payments are made to cover your income tax and self-employment tax (more on that in the next section). As a freelancer, you’ll likely need to pay taxes quarterly instead of annually.
The due dates for estimated tax payments are as follows:
- April 15th for income earned from January 1st to March 31st
- June 15th for income earned from April 1st to May 31st
- September 15th for income earned from June 1st to August 31st
- January 15th of the following year for income earned from September 1st to December 31st
Missing these deadlines can lead to penalties, so be sure to mark these dates on your calendar!
How Much Tax Do Freelancers Pay?
The amount of tax you’ll owe as a freelancer depends on two factors: your income and your self-employment tax.
- Income Tax: Freelancers pay income tax based on their earnings, just like employees do. However, because you’re self-employed, you’re responsible for calculating and paying it yourself. The income tax rate will depend on how much money you make and your filing status (single, married, etc.). You’ll file your taxes using Form 1040 and Schedule C to report your income and deductions.
- Self-Employment Tax: In addition to income tax, freelancers must also pay self-employment tax. This tax covers Social Security and Medicare and is typically 15.3% of your net earnings. This is broken down into 12.4% for Social Security and 2.9% for Medicare. If you earn over a certain threshold, you may also be subject to an additional 0.9% Medicare tax.
For many freelancers, it’s recommended to set aside 25-30% of your income for taxes to cover both income and self-employment taxes. That way, when tax time rolls around, you’ll be prepared.
How to Calculate Self-Employment Tax
Self-employment tax is a tax that freelancers and other self-employed individuals pay to cover their Social Security and Medicare contributions. Unlike traditional employees, who have these taxes automatically deducted from their paychecks, freelancers are responsible for paying both the employee and employer portions of these taxes.
As mentioned above, the total self-employment tax rate is 15.3%, which is broken down as follows:
- 12.4% for Social Security
- 2.9% for Medicare
If you earn over $200,000 (or $250,000 for married couples filing jointly), you may be subject to an additional 0.9% Medicare tax on your income above that threshold.
Real-World Example of Calculating Self-Employment Tax:
Let’s walk through an example to see how self-employment tax is calculated…..
Imagine you’re a freelancer who earned $50,000 in net income (after deducting business expenses) during the year.
Calculate the taxable amount for self-employment tax:
The IRS allows you to only pay self-employment tax on 92.35% of your net income. So, for a $50,000 income, the taxable amount is:
$50,000 x 92.35% = $46,175
Calculate the self-employment tax:
The self-employment tax rate is 15.3%. To calculate the tax owed:
$46,175 x 15.3% = $7,060.78
So, in this example, you would owe $7,060.78 in self-employment tax.
Important Notes:
- Half of Your Self-Employment Tax Is Deductible: While you have to pay the full amount of self-employment tax, you can deduct half of it when calculating your adjusted gross income on your tax return. This doesn’t lower the amount of self-employment tax you owe, but it can reduce your taxable income.
- Social Security Cap: For 2025, there’s a maximum amount of income that is subject to Social Security tax ($160,200). Any income above this amount is not subject to the 12.4% Social Security portion of the self-employment tax.
Tax Forms Freelancers Might Need
Freelancers need to file a few specific forms to report their income, expenses, and self-employment tax. Here are the key forms you’ll likely need:
1) Form 1099-NEC –
As a freelancer, you’ll likely receive Form 1099-NEC from clients who have paid you $600 or more during the tax year. This form reports the total amount your clients paid you. While the form is provided to you by the client, you’ll use it to report your income when filing your taxes. Be sure to double-check the amounts reported on the form to ensure accuracy.
If you don’t receive a 1099-NEC, you are still responsible for reporting the income you earned. The IRS expects you to report all income you earned during the year, regardless of whether or not you receive a 1099.
2) Schedule C (Form 1040) –
Schedule C is used to report business income and expenses. Freelancers use this form to report their earnings, subtract business expenses (like office supplies, software, and travel), and calculate their net income. The net income from Schedule C is then transferred to Form 1040, which is your main income tax form.
Be sure to track all business-related expenses throughout the year, as they can help lower your taxable income. For example, if you worked from home, you might be eligible to claim the home office deduction.
3) Schedule SE (Form 1040) –
Freelancers use Schedule SE to calculate and report their self-employment tax. You’ll transfer the net income from Schedule C to this form, and Schedule SE will help you determine how much self-employment tax you owe.
Once you’ve calculated your self-employment tax using Schedule SE, you’ll include that amount on your Form 1040.
4) Form 1040 –
Form 1040 is the main form for filing your annual income tax return. On this form, you’ll report your total income, deductions, credits, and tax payments for the year. Freelancers typically use Form 1040 in conjunction with Schedule C and Schedule SE.
5) Additional Forms –
While the forms above are the most common for freelancers, you may need other forms depending on your situation. Some examples include:
- Form 8889 for Health Savings Account (HSA) deductions.
- Form 4562 for depreciation and business asset deductions.
- Form 8862 if you are claiming the Earned Income Tax Credit (EITC).
Organizing Your Forms –
Keep track of all your forms, including 1099-NECs, business expenses, and any receipts for deductions. The more organized you are, the easier it will be to file your taxes accurately and on time. If you’re unsure which forms you need, consider consulting a tax professional to ensure you’re using the right ones.
Tips for Freelancers Paying Taxes for the First Time
Paying taxes as a freelancer can be a bit overwhelming, especially if it’s your first time. But with the right preparation, you can navigate the process with confidence. Here are some essential tips for freelancers paying taxes for the first time:
(1) Set Aside Money for Taxes
One of the biggest challenges freelancers face is making sure they have enough money to cover their taxes. Unlike traditional employees, your clients won’t withhold taxes for you, so it’s essential to set aside a portion of your earnings to cover your tax bill. A good rule of thumb is to set aside 25-30% of your income for taxes. This way, when your estimated tax payments are due, you won’t be caught off guard.
(2) Track All Your Expenses
Freelancers can deduct many business-related expenses, including home office costs, supplies, software, and even business travel. Keeping accurate records of all these expenses can significantly reduce your taxable income. Use a spreadsheet, accounting software, or even a dedicated app to track your income and expenses throughout the year. The more organized you are, the easier it will be to maximize your deductions.
(3) Make Quarterly Estimated Tax Payments
Since freelancers don’t have taxes withheld from their income, it’s important to make quarterly estimated tax payments to the IRS. These payments are due in April, June, September, and January. You can pay online using the IRS website or through third-party payment platforms. Failing to make these payments could result in penalties, so be sure to stay on top of them.
(4) Consider Hiring a Tax Professional
If tax season feels overwhelming, or if you have a complex tax situation, consider hiring a tax professional or using tax preparation software. A tax pro can help you navigate deductions, ensure you’re filing the right forms, and even help you plan for the upcoming year. They can also provide valuable advice on tax-saving strategies.
(5) Stay on Top of Tax Deadlines
Tax deadlines are non-negotiable, and missing them can lead to penalties. Be sure to mark your calendar for quarterly estimated tax payments and the final tax return deadline in April. If you’re filing late or if you need more time, you can file for an extension, but keep in mind that an extension only gives you more time to file, not more time to pay.
(6) Plan for the Future
As you continue to freelance, it’s important to keep tax planning in mind year-round. Set aside money regularly, track your expenses, and stay organized so that when tax season rolls around, you’re not scrambling to get everything in order. Consider contributing to retirement accounts like SEP-IRAs or Solo 401(k)s to reduce your taxable income and save for your future.
Stay on Top of Your Freelance Taxes
Paying taxes as a freelancer doesn’t have to be daunting if you stay organized and plan ahead. By following these tips, setting aside money for taxes, and staying on top of your filing deadlines, you’ll ensure that you’re meeting your tax obligations and avoiding any surprises come tax time. If you need help with tax forms or want to make the filing process easier, FormPros has the tools you need to quickly and easily generate the necessary tax forms.
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