Self-Employed Taxes: A Plain-English Guide for Freelancers and Gig Workers

Whether you freelance, drive for a rideshare app, sell online, consult, or run a small business as a sole proprietor, the IRS generally treats you as self-employed. That means three big differences from being an employee: you owe an additional tax called self-employment tax, you pay tax during the year rather than through withholding, and you can deduct business expenses. This guide covers each.

Are you self-employed for tax purposes?

In general you are self-employed if you carry on a trade or business as a sole proprietor or independent contractor, or are a member of a partnership. You do not need an LLC to be self-employed, and side work counts even if you also have a regular job. The IRS looks at whether you control how, when and where the work is done; if a company controls those things, you may actually be an employee and can ask for a determination. If you receive a Form W-2 for the work, you were treated as an employee; if you receive a 1099-NEC or 1099-K, you were treated as an independent contractor or seller.

Step 1: Track income and expenses from day one

Open a separate bank account or card for business if you can, and record every payment you receive and every business expense. A simple spreadsheet works. You report all income whether or not you received a form — a 1099 is a convenience, not a prerequisite. The IRS Topic on recordkeeping explains what to keep.

Step 2: Understand self-employment tax

Self-employment tax is how self-employed people pay Social Security and Medicare. The combined rate is 15.3%: 12.4% for Social Security (on net earnings up to an annual wage base — $176,100 for 2025 and $184,500 for 2026) and 2.9% for Medicare (with no cap). You calculate it on 92.35% of your net earnings from self-employment on Schedule SE, and you can deduct half of it as an adjustment to income. An Additional Medicare Tax of 0.9% applies to earnings above certain thresholds. Details: self-employment tax explained.

Step 3: Report business income on Schedule C

Schedule C (Profit or Loss From Business) lists your gross receipts and your expenses; the difference is your net profit, which flows to your Form 1040 and to Schedule SE. If you had a net loss, it can reduce other income in many cases, subject to rules like the hobby-loss and at-risk limits.

Step 4: Claim your business deductions

Deductible expenses must be both “ordinary” (common in your trade) and “necessary” (helpful and appropriate). Typical categories:

• Supplies, equipment and software.
• Advertising and website costs.
• Professional services and fees.
• A business share of phone and internet.
• Business insurance and licenses.
• Travel and vehicle costs (standard mileage or actual expenses).
• A qualifying home office.
• Retirement plan contributions (for example SEP-IRA or solo 401(k)) and self-employed health insurance, claimed as adjustments.

Use our self-employed deductions checklist. Meals are generally only partly deductible, and personal expenses are never deductible. Mixed-use items must be allocated reasonably.

Step 5: Pay as you go with estimated taxes

Because no employer withholds tax from your income, you generally must make quarterly estimated payments if you expect to owe $1,000 or more when you file. The four due dates fall around April 15, June 15, September 15 and January 15. To avoid an underpayment penalty, a common safe harbor is paying at least 90% of this year’s tax or 100% of last year’s tax (110% if last year’s AGI was above $150,000). Full details are in how to pay estimated taxes.

Step 6: Don’t forget the qualified business income deduction

Many sole proprietors can deduct up to 20% of qualified business income, subject to taxable-income limits and special rules for certain service businesses. It reduces income tax but not self-employment tax. Your tax software or preparer should calculate it; ask if you do not see it.

Step 7: Plan for your state and local taxes

You may owe state income tax, and some places add local business taxes or commuter taxes. Nine states have no broad wage income tax (list here), but sales tax and business registration can still apply. See our state guides.

Step 8: File and keep records

Self-employed filers generally use Form 1040 with Schedule C and Schedule SE. Free options can handle simple self-employment returns, but not all IRS Free File partners cover self-employment income — check scope before starting (see free filing options). Keep records for at least three years from filing (more detail).

Common mistakes

• Not setting aside money for taxes as income arrives. A rough habit many freelancers use is moving a percentage of every payment into a separate savings account; the right percentage depends on your income and state.
• Missing quarterly payments and facing an underpayment penalty.
• Mixing personal and business spending.
• Not reporting income that arrived without a 1099 (payment apps, cash, platforms).
• Deducting a home office that is not used regularly and exclusively for business.
• Ignoring a 1099-K or 1099-NEC that does not match your records — reconcile it and keep documentation.

When to get professional help

If you have employees, inventory, multiple states, a rental property, or you are considering an S corporation election, a CPA or enrolled agent may save you more than they cost. For basic freelancing, free or low-cost software plus careful records is often enough.

Frequently asked questions

Official sources

• IRS: Self-Employed Individuals Tax Center
• IRS: Self-employment tax
• IRS Topic 554: Self-employment tax
• IRS: Estimated taxes
• IRS: About Schedule C
• IRS: About Schedule SE
• IRS Publication 334: Tax guide for small business
• IRS Publication 535: Business expenses