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As a freelancer or independent contractor, you are responsible for paying both the employee AND employer share of Social Security and Medicare taxes — together called self-employment (SE) tax at 15.3% of net profit.
Unlike W-2 employees, no one withholds taxes from your payments. You must pay estimated taxes quarterly (April 15, June 16, September 15, January 15) to avoid IRS underpayment penalties.
How Freelance Taxes Are Calculated
Step 1: Net profit = gross income − business expenses
Step 2: SE tax = net profit × 15.3% (Social Security 12.4% up to $168,600 + Medicare 2.9%, no cap)
Step 3: SE tax deduction = SE tax × 50% (You can deduct half your SE tax from taxable income)
Step 4: Taxable income = net profit − SE deduction + any other income
Step 5: Federal income tax = apply 2024 marginal brackets to taxable income
Step 6: Quarterly payment = (SE tax + federal income tax) ÷ 4
Key Deductions That Reduce Your Bill
- Business expenses: software, equipment, professional development, home office
- Health insurance premiums: fully deductible if you pay for your own policy
- Retirement contributions: SEP-IRA (up to 25% of net profit, max $69k), Solo 401(k) (up to $23k employee + 25% employer share), or Roth IRA ($7k)
- Half of SE tax: automatically calculated and deducted
S-Corp Election Consideration
At ~$80,000+ in net profit, some freelancers save by electing S-Corp status. You pay yourself a "reasonable salary" (subject to SE tax) and take the remainder as a distribution (not subject to SE tax). The savings can exceed $5,000/year but require running payroll and filing an additional tax return. Consult a CPA before making this decision.
Frequently asked questions
When do I need to pay quarterly estimated taxes? If you expect to owe $1,000 or more in taxes for the year, the IRS requires quarterly estimated payments. The due dates are April 15, June 15, September 15, and January 15. Missing or underpaying results in a penalty (currently ~8%/year annualized on the underpaid amount).
What expenses can I deduct as a freelancer? Any ordinary and necessary business expense: home office (dedicated space), business software and subscriptions, professional development, equipment, internet service (business portion), professional liability insurance, accounting and legal fees, and business-related travel.