Self-Employed Contractor Taxes Explained (What You Need to Know)

If you're a freelancer, independent contractor, or gig worker, your taxes work differently from W-2 employees. Instead of having taxes withheld from your paycheck, you'll pay estimated taxes on your income. Here's how it works—and how to plan for it.

What Counts as Contractor Income?

You’re considered self-employed if you:

• Receive 1099 forms from clients or platforms (Uber, Upwork, etc.)
• Run a side hustle, freelance business, or small shop
• Sell services or goods as a sole proprietor

The Two Main Self-Employment Taxes

• Income Tax: Based on your total profit after expenses. Rates follow the same tax brackets as regular employees.
• Self-Employment Tax: Covers Social Security and Medicare. It’s roughly 15.3% on your net earnings.

How to Estimate Contractor Taxes

As a rough rule of thumb:

• Set aside 25%–30% of your income for taxes.
• This covers federal income tax, self-employment tax, and possibly state taxes.

Example Scenario

Maria earns $60,000 from freelance graphic design. She deducts $10,000 in business expenses, leaving $50,000 net income.

Estimated taxes:

• Federal income tax: ~$5,000 (varies by bracket)
• Self-employment tax: ~$7,650 (15.3% of $50,000)

Use Our Free Contractor Tax Estimator

Skip the guesswork. Use our free Contractor Tax Estimator to calculate your estimated self-employment taxes based on your income, expenses, and state.

Helpful Resource

For official IRS guidelines, visit the IRS Self-Employed Tax Center.