Independent Contractor Taxes
As a 1099 contractor, no taxes are withheld from your pay. You are responsible for calculating, saving, and remitting your own taxes quarterly. Here is what that means in practice.
The Two Main Taxes
Self-Employment (SE) Tax — 15.3%
Covers Social Security (12.4%) and Medicare (2.9%) on your net self-employment income. W2 employees split this with their employer (7.65% each); as a contractor, you pay the full amount. You can deduct 50% of SE tax from your gross income, which partially offsets the burden.
Federal Income Tax
Applied to net profit (gross income minus allowable deductions) at your marginal tax bracket. Unlike W2 employees, no withholding happens automatically — you pay quarterly.
Quarterly Estimated Payments
If you expect to owe $1,000 or more in federal taxes for the year, you must make quarterly estimated payments or face underpayment penalties. The due dates are typically:
Q1 (Jan–Mar)
April 15
Q2 (Apr–May)
June 15
Q3 (Jun–Aug)
September 15
Q4 (Sep–Dec)
January 15
Exact dates shift when they fall on weekends or federal holidays. Use IRS Form 1040-ES to calculate and submit payments.
Common Deductible Business Expenses
- Home office: Dedicated workspace used exclusively for business — simplified method ($5/sq ft, up to 300 sq ft) or actual expense method
- Vehicle/mileage: Standard mileage rate (IRS sets annually) or actual vehicle expenses for business use
- Equipment and tools: Computers, phones, tools used for work — may be deductible in the year purchased (Section 179)
- Software and subscriptions: Business-related software, cloud services, professional tools
- Health insurance premiums: Self-employed health, dental, and vision insurance — deductible above the line
- Retirement contributions: SEP-IRA, Solo 401(k) — significant contribution limits can reduce taxable income substantially
- Half of SE tax: The employer-equivalent 50% of your self-employment tax is deductible from gross income
- Professional development: Courses, books, certifications directly related to your work
How Much Should I Save?
A commonly cited rule of thumb is to set aside 25–30% of each payment for taxes. The exact amount depends on your gross income, deductions, state tax rate, and filing status.
Simplified estimate approach:
SE Tax ≈ Net Income × 0.9235 × 0.153
Federal Income Tax ≈ (Net Income − SE Tax deduction) × your bracket
0.9235 = 1 − 0.0765 (the SE tax deduction adjustment). Consult IRS Schedule SE for the official calculation.
Frequently Asked Questions
Do I need to file a tax return as a contractor?
Yes, if your net self-employment income is $400 or more. You file Schedule C (profit/loss from business) and Schedule SE (self-employment tax) with your Form 1040.
What is a 1099-NEC form?
Clients who pay you $600 or more in a calendar year are required to issue a 1099-NEC reporting that income to the IRS. You owe tax on all self-employment income regardless of whether you receive a 1099.
Can I write off my car as a contractor?
Only the business-use portion. Personal commuting is never deductible. Track mileage carefully — the IRS standard mileage rate or actual expense method both require documentation.
Last reviewed: August 2026
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