Freelance tax basics in the United States

A freelancer in the United States pays two federal taxes on the profit of the business: ordinary income tax, and a self-employment tax of 15.3% that stands in for the Social Security and Medicare contributions an employer would otherwise withhold. Nobody withholds either one from a client payment, so the freelancer works out the profit on Schedule C, works out the self-employment tax on Schedule SE, and pays during the year through estimated payments, usually four of them.

This article covers the federal rules that apply in the United States, as the Internal Revenue Service (IRS) publishes them. It is general information, not tax advice, and it does not cover the taxes of any other country. Amounts are in US dollars.

The rules below apply to a sole proprietor or independent contractor, the default status of a person who starts taking paid work without forming a company. The IRS counts you as self-employed if you carry on a trade or business as a sole proprietor or an independent contractor, and it says the same of a part-time business and of gig work. A freelancer with a day job is therefore an employee for the salary and self-employed for the side income, at the same time. Income tax brackets are left out on purpose: they change every year, and the worked examples here use an assumed overall rate that is labelled as an assumption each time it appears.

What taxes does a freelancer pay in the United States?

A freelancer in the United States pays federal income tax and self-employment tax on net profit, and may also owe state or local tax depending on where they live and work. Net profit is what remains of business income after business expenses; according to the IRS tax center for self-employed individuals, when expenses are less than income the difference is the net profit, and when they are more it is a net loss.

The two federal taxes are figured on almost the same number but they are separate. Income tax is progressive and depends on the whole household picture: other income, filing status, deductions and credits. Self-employment tax is a flat percentage of the earnings of the business and ignores most of that picture. This is why a freelancer with a modest profit and little or no income tax to pay can still owe a four-figure amount at filing: the self-employment tax applies from the first dollars of profit.

State taxes vary by state. Some states tax income, some do not, some cities add their own, and the rules for estimated payments at state level are set by each state. Check the rules of your own state with its revenue department; nothing in this article describes them.

What is self-employment tax, and what is its rate?

Self-employment tax is the Social Security and Medicare tax of people who work for themselves, and the IRS gives its rate as 15.3%: 12.4% for Social Security and 2.9% for Medicare. The rate is not applied to the whole profit: the IRS tax topic on self-employment tax states that the amount subject to the tax is generally 92.35% of net earnings from self-employment.

Put together, the two percentages give an effective rate of about 14.13% of net profit, since 92.35% multiplied by 15.3% is 14.13%. That single figure is a fair shortcut for a freelancer below the ceiling described next.

The Social Security part has a ceiling. The IRS explains that the law sets a maximum amount of net earnings subject to the Social Security tax and that this amount changes every year; in its tax guide for small business for 2025 returns, only the first $176,100 of combined wages, tips and net earnings was subject to the 12.4% part. "Combined" matters to a freelancer who also holds a job: the wages count towards the ceiling first. The 2.9% Medicare part has no ceiling.

Higher earners meet one more line. The IRS states that an additional Medicare tax of 0.9% applies when wages, compensation or self-employment income pass a threshold set by filing status: $200,000 for a single filer, $250,000 for a married couple filing jointly and $125,000 for a married person filing separately.

The table shows what the standard calculation gives at four levels of net profit, all below the Social Security ceiling quoted above.

The last column is a deduction, not a refund, and it is explained further down.

When does a freelancer have to file a return?

A freelancer has to file a federal income tax return when net earnings from self-employment are $400 or more, according to the IRS tax center for self-employed individuals. The same page adds that with net earnings under $400 you may still have to file if you meet another filing requirement.

The threshold is tied to the profit of the business alone, not to total income. A student who earns $2,000 from a few design jobs, with $300 of expenses, is over it, and so is an employee whose side work leaves a few hundred dollars of profit.

The same $400 is the trigger for the tax itself. The IRS states that you must pay self-employment tax and file Schedule SE if your net earnings from self-employment were $400 or more. At exactly $400 of net profit, the calculation gives $369.40 subject to the tax and $56.52 of self-employment tax.

The threshold is measured on net earnings, after expenses, not on what clients paid, and it does not depend on whether any client sent a form. The IRS says of payment reporting that whether or not you receive a Form 1099-K, you must still report any income on your tax return, and the same holds for income no form ever mentions.

What are Schedule C and Schedule SE?

Schedule C is the form on which a sole proprietor reports the income and expenses of the business, and Schedule SE is the form on which the self-employment tax is computed from the result; both are attached to Form 1040, the individual income tax return. The IRS describes Schedule C as the form used to report income or loss from a business you operated or a profession you practiced as a sole proprietor, and its tax topic says to compute self-employment tax on Schedule SE.

The order of work follows the forms. Schedule C starts with gross receipts, everything the business took in during the year, and subtracts expenses by category to reach the net profit or loss. That figure goes to two places: into the income on which income tax is figured, and onto Schedule SE, where it is multiplied by 92.35% and then by the rate. The self-employment tax comes back to the return as a tax owed, and half of it comes back as a deduction.

A freelancer therefore files one return, not a separate business return. The profit of a sole proprietorship is the owner's income. The IRS notes that the most common forms of business are the sole proprietorship, the partnership, the corporation and the S corporation, and that the structure decides which income tax return is filed; a freelancer who has formed a partnership or a corporation is outside the scope of this article.

How do quarterly estimated payments work, and when are they due?

Estimated payments are instalments of the year's income tax and self-employment tax, paid in four periods with due dates of April 15, June 15, September 15 and January 15 of the following year, according to the IRS. Individuals, sole proprietors included, generally have to make them if they expect to owe $1,000 or more when the return is filed, and Form 1040-ES is the worksheet for the amounts.

The reason is that the federal system collects tax as income is earned. An employer does this through withholding; a freelancer has no withholding, so the IRS says that self-employed people generally pay estimated taxes quarterly, and that the payments cover Social Security, Medicare and income tax together.

The word "quarterly" is approximate. The four periods published by the IRS do not have the same length, which catches freelancers who think in calendar quarters.

When a due date falls on a Saturday, a Sunday or a legal holiday, the IRS treats a payment made on the next day that is none of those as on time. Payments can be mailed with a Form 1040-ES voucher or made online, by phone or through the agency's mobile app, and nothing obliges you to wait for the due date: the IRS says you may pay weekly, every two weeks or monthly, as long as enough has been paid by the end of the period.

A freelancer who pays too little during the year may owe a penalty for underpayment of estimated tax, even when the full balance is paid with the return. The size of that penalty depends on the amounts and the dates, and the IRS computes it on Form 2210.

What are the safe-harbour tests for estimated tax?

The safe-harbour tests are the levels of payment at which the IRS charges no underpayment penalty: owing less than $1,000 at filing after withholding and credits, or having paid during the year at least 90% of the current year's tax or 100% of the tax shown on the prior year's return, whichever is smaller. For a taxpayer whose adjusted gross income in the prior year was more than $150,000, or $75,000 if married filing separately, the IRS replaces the 100% figure with 110%.

The prior-year test is the one most freelancers build on, because its target is known on the day the previous return is finished. The current-year test depends on a profit that nobody knows until December. The IRS adds two conditions: the prior year's return must cover all 12 months, and a taxpayer whose total tax for the prior year was zero, and who was a US citizen or resident for the whole of that year, generally has no estimated tax to pay.

A worked example, with assumed figures. A freelancer's prior-year return showed a total tax of $18,000, and the same freelancer expects the current year's tax to reach $24,000. The 90% test gives $21,600 and the 100% prior-year test gives $18,000; the smaller of the two is $18,000, or $4,500 in each of the four payments. If the prior year's adjusted gross income had been above $150,000, the prior-year figure would become 110% of $18,000, which is $19,800, or $4,950 per payment, still below $21,600. In both cases the freelancer avoids the penalty but not the tax: the difference between what was paid and the $24,000 is due with the return.

Income that arrives unevenly has its own treatment. The IRS says that a taxpayer who receives income unevenly during the year may be able to lower or avoid the penalty by annualizing the income and making unequal payments, and that Form 2210 is where this is worked out. Farmers, fishermen and certain higher-income taxpayers follow different requirements, which the IRS sets out in its publication on withholding and estimated tax.

What are Forms 1099-NEC and 1099-K?

Forms 1099-NEC and 1099-K are information returns: copies of what a payer reported to the IRS about money paid to you, not tax bills and not a calculation of what you owe. A client uses Form 1099-NEC to report nonemployee compensation, and payment card companies, payment apps and online marketplaces use Form 1099-K to report payments received for goods or services.

For Form 1099-NEC, the IRS instructions revised for payments made in tax years beginning after 2025 tell a business to report nonemployee compensation of $2,000 or more, and note that the threshold was increased to that figure and may be adjusted for inflation from calendar year 2027. The form must be filed with the IRS and furnished to the payee by January 31.

For Form 1099-K, the IRS explains that payment apps and online marketplaces must send the form when payments for goods or services total over $20,000 in more than 200 transactions, that they may still send one below that level, and that payments taken by card produce a form whatever their number or amount. The payee's copy is due by January 31.

Three consequences follow for a freelancer.

• A threshold is the payer's obligation, not yours. Income below it, or from a client who never files anything, is still income to report.
• The same money can appear twice. A client who pays through a payment app may be reported by the app, and you may also have recorded the invoice yourself; your own books, not the forms, tell you what gross receipts were. The Schedule C instructions ask that line 1 include the amounts properly shown on your Forms 1099-NEC.
• A form can include money that is not business income. The IRS says payments from friends and family, such as gifts or repayments of shared expenses, should not be reported on a Form 1099-K, and recommends marking them as non-business in the payment app where that is possible.

Check each form against your records when it arrives.

Which business expenses can a freelancer deduct?

A freelancer can deduct the ordinary and necessary expenses of the trade or business: the IRS tax topic on self-employment tax says that net earnings are calculated by subtracting ordinary and necessary trade or business expenses from the gross income of the business. Every dollar of deductible expense lowers both taxes at once, because income tax and self-employment tax both start from the net profit.

The IRS tax guide for small business groups the expenses a sole proprietor meets most often under headings that give a useful map: car and truck expenses, insurance, legal and professional fees, rent, travel and meals, and business use of the home.

Three of these have limits worth knowing before the first receipt is filed.

• Meals. The Schedule C instructions state that in most cases only 50% of business meal expenses can be deducted.
• Home office. The IRS says that a person who uses part of the home for business may be able to deduct expenses for that use, whether they own or rent. The Schedule C instructions for 2025 describe a simplified method that multiplies the area used, in square feet, by $5, on no more than 300 square feet.
• Vehicle. Business use of a car is deductible either from actual costs or with a standard mileage rate that the IRS publishes each year, so the figure to use is the one for the year of the return.

Two cautions apply to all of them. An expense has to be supported: the IRS states that you need documents to show the expenses you want to deduct. And an expense has to belong to the business; where one bill covers both private and business use, such as a phone plan, only the business share is in question, and the basis of the allocation should be written down.

How does the deduction for half of self-employment tax work?

The deduction for half of self-employment tax lets a freelancer subtract the employer-equivalent portion of the tax when figuring adjusted gross income, which lowers income tax only. The IRS states the rule in those terms and adds that the deduction does not change net earnings from self-employment or the self-employment tax itself.

On a net profit of $80,000 the self-employment tax is $11,303.64 and the deduction is $5,651.82. What that deduction saves in income tax depends on the bracket the income falls in, which is why no figure is given here.

The order matters when you estimate by hand: self-employment tax is computed first, on the full 92.35% of net profit, and the deduction comes afterwards, on the income tax side only.

A worked example: self-employment tax and the amount to set aside per invoice

A freelancer who knows the net profit can compute the self-employment tax exactly, and can cover both federal taxes by moving a fixed share of every invoice to a separate account on the day it is paid. The example below is illustrative: the receipts and expenses are invented, and the 28% set-aside rate is an assumption chosen for the example, not a rate published by the IRS and not a recommendation.

Whether $14,456.36 is enough, too much or too little for the income tax cannot be read from this example. It depends on filing status, other household income, deductions and credits, and on the state. The method is what carries over: take last year's total tax, or this year's estimate from the Form 1040-ES worksheet, divide it by the gross receipts you expect, and use the result as your own rate.

Setting aside by invoice also matches the uneven payment periods without further effort. Suppose the $92,000 arrives as $21,000 in the first IRS period, $14,000 in the second, $25,000 in the third and $32,000 in the fourth. At 28%, the tax account receives $5,880, $3,920, $7,000 and $8,960, which again totals $25,760. The money for each due date is there because it was taken from the receipts of that period.

Which records does a freelancer need to keep, and for how long?

A freelancer needs records that show income and expenses clearly and the documents that support them, kept in general for three years, with longer periods in specific cases. The IRS says that, with few exceptions, the law does not require a particular kind of records, and that any system that clearly shows income and expenses will do.

The IRS groups supporting documents by what they prove. For gross receipts: deposit information, receipt books, invoices and the information returns received. For expenses: canceled checks or other proof of payment including electronic transfers, account statements, card receipts and statements, and invoices. For assets such as equipment: purchase and sales invoices and proof of payment. Travel, gift and car expenses have their own substantiation rules in a separate IRS publication.

How to build the income record itself is the subject of a separate article on tracking freelance income. The point for tax purposes is only that the total on Schedule C must be traceable to documents.

How do other countries differ?

Other countries tax freelance income under their own systems, and none of the forms, rates, thresholds or dates in this article applies outside the United States. The questions stay the same everywhere, which makes them a useful checklist for a freelancer who lives or works elsewhere.

• Whether you have to register as self-employed before the first invoice, and with which authority.
• How social contributions are charged: as a share of profit, as a fixed amount, or through a separate scheme.
• Whether tax is paid in advance during the year, and on what schedule.
• Whether a sales tax or value added tax applies to your services, and from what level of turnover.
• Which expenses are accepted, and for how long records must be kept.

A freelancer who works across two countries sits between two systems and needs an adviser who knows both.