How Do I Pay Taxes When I'm Self-Employed?

In this article

1. What taxes do self-employed people pay?
2. A quick example
3. How quarterly estimated taxes work
4. Worked example: quarterly payments
5. Filing your annual return
6. Don't forget state taxes
7. Common self-employed tax mistakes
8. Lower your self-employment tax bill (legally)
9. A simple system that prevents tax-time panic
10. FAQ

When you work for an employer, taxes come out of every paycheck automatically. When you're self-employed (freelancer, gig worker, sole proprietor, single-member LLC owner or side hustler), nobody withholds anything. You're responsible for calculating, saving and paying your own taxes during the year. Get it right and it's routine. Get it wrong and you face a big April bill plus penalties. Here's exactly how it works in 2026.

What taxes do self-employed people pay?

1. Self-employment tax: Social Security and Medicare for the self-employed. It's 15.3% on 92.35% of your net self-employment earnings: 12.4% for Social Security on earnings up to $184,500 in 2026, plus 2.9% for Medicare with no cap. An extra 0.9% Medicare tax applies to earnings above $200,000 for single filers ($250,000 for married filing jointly). It applies once your net self-employment earnings reach $400 in a year.
2. Federal income tax on your profit, at your normal tax bracket.
3. State and local income tax, depending on where you live. A handful of states have no state income tax.

You owe tax on profit, not revenue: what you earn minus your business expenses. That's why tracking deductions matters so much.

A quick example

Say you earn $75,000 from freelancing and have $15,000 in business expenses, leaving $60,000 net profit.

• Self-employment tax: $60,000 × 92.35% × 15.3% = about $8,478.
• You can deduct half of that (about $4,239) when calculating income tax.
• Income tax then depends on your filing status, other income and deductions, including the 20% qualified business income (QBI) deduction many self-employed people can claim.

That's why a common rule of thumb is to set aside 25 to 30% of your self-employment profit for taxes, and more if you're in a high-tax state or high bracket.

How quarterly estimated taxes work

The US tax system is pay-as-you-go. If you expect to owe $1,000 or more in federal tax for the year after withholding and credits, you generally need to make estimated tax payments four times a year.

When a due date falls on a weekend or holiday, it moves to the next business day. Most states with an income tax have their own estimated payment schedules too.

How much to pay each quarter

Use IRS Form 1040-ES, which includes a worksheet. To avoid an underpayment penalty, you generally need to pay the smaller of:

• 90% of this year's tax, or
• 100% of last year's tax (110% if last year's adjusted gross income was over $150,000, or $75,000 if married filing separately).

The "last year" safe harbor is the simplest if your income is growing: divide last year's total tax by four and pay that each quarter.

How to pay

• IRS Direct Pay from your bank account (free)
• Your IRS online account (free)
• EFTPS, the Electronic Federal Tax Payment System (free)
• Debit or credit card through approved processors (fees apply)

Worked example: quarterly payments

Alex is a freelance web developer. Last year, his total federal tax (income tax plus self-employment tax) was $12,000, and his adjusted gross income was under $150,000. This year his income is growing.

• Using the prior-year safe harbor, Alex pays 100% of last year's tax: $12,000 ÷ 4 = $3,000 per quarter.
• He pays $3,000 by April 15, June 15 and September 15, 2026, and January 15, 2027.
• Even if he ends up owing more because his income grew, he generally won't owe an underpayment penalty. He pays the balance when he files.
• Meanwhile he keeps 28% of each payment in a tax savings account, so the final balance won't be a surprise.

If your income is uneven, such as a big project late in the year, the IRS's annualized income method (Form 2210, Schedule AI) can let you pay less in earlier quarters.

Filing your annual return

At tax time, self-employed individuals typically file:

• Form 1040, your personal return.
• Schedule C to report business income and expenses (sole proprietors and single-member LLCs).
• Schedule SE to calculate self-employment tax.
• Form 8995 (or 8995-A) for the qualified business income deduction, if eligible.

Your estimated payments are credited against what you owe. Clients may send you Forms 1099-NEC (for 2026 payments of $2,000 or more) and payment platforms may send Forms 1099-K, but you must report all your income whether or not you get a form.

Don't forget state taxes

Most states with an income tax expect estimated payments from self-employed residents, often on similar quarterly dates. Some cities and counties also levy income or business taxes. If you sell taxable goods or services, sales tax is a separate obligation filed with your state. Check your state revenue department's website for its estimated tax rules and forms.

Common self-employed tax mistakes

• Spending tax money and having nothing left in April.
• Skipping quarterly payments in a slow year, then facing penalties when income jumps.
• Reporting only income that appears on 1099 forms.
• Missing deductions because expenses weren't tracked.
• Mixing business and personal spending, making deductions hard to prove.

Lower your self-employment tax bill (legally)

• Track every deductible expense. See what business expenses you can deduct.
• Deduct half of your self-employment tax (automatic when you file).
• Claim the QBI deduction if eligible: up to 20% of qualified business income, made permanent by the One Big Beautiful Bill Act, subject to income limits.
• Contribute to a retirement plan like a SEP IRA or Solo 401(k), which can reduce income tax.
• Deduct self-employed health insurance premiums if you qualify.
• Consider an S corp election once profits are substantial. Paying yourself a reasonable salary can reduce self-employment tax on the remaining profit. See how to pay yourself.

A simple system that prevents tax-time panic

1. Open a separate savings account just for taxes.
2. Move 25 to 30% of every client payment into it the day it arrives.
3. Log income and expenses weekly.
4. Put the four estimated tax dates on your calendar with reminders.
5. Review your numbers each quarter and adjust payments if income changes.

Frequently asked questions

How much should I set aside for taxes if I'm self-employed?

A common rule of thumb is 25 to 30% of your net self-employment profit, covering self-employment tax plus federal and state income tax. Higher earners and people in high-tax states may need more.

What is the self-employment tax rate for 2026?

15.3% on 92.35% of net self-employment earnings: 12.4% Social Security on earnings up to $184,500 and 2.9% Medicare on all earnings, plus 0.9% additional Medicare tax above $200,000 (single).

What happens if I don't pay quarterly estimated taxes?

You may owe an underpayment penalty, calculated like interest on the amount you should have paid each quarter, in addition to the tax itself. Paying based on the safe harbor rules avoids it.

Do I have to pay taxes if I didn't get a 1099?

Yes. All self-employment income is taxable, whether or not you receive a Form 1099-NEC or 1099-K.

This article is general information for US readers, not legal, tax or financial advice. Rules, prices and platform policies change, so confirm details with official sources or a qualified professional.