How Are Freelancers Taxed?

As a freelancer or independent contractor, you pay self-employment (SE) tax of 15.3% (12.4% Social Security + 2.9% Medicare) on top of federal income tax. You can deduct half of the SE tax from your gross income when calculating income tax. You're also required to pay quarterly estimated taxes to avoid penalties.

Quarterly Tax Payment Deadlines (2024)

Q1 (Jan–Mar): due April 15. Q2 (Apr–May): due June 17. Q3 (Jun–Aug): due September 16. Q4 (Sep–Dec): due January 15, 2025. Missing these dates results in underpayment penalties from the IRS.

Deductible Business Expenses

Freelancers can deduct legitimate business expenses: home office (simplified method: $5/sq ft up to 300 sq ft), computer and equipment, internet and phone (business %), software subscriptions, professional development, health insurance premiums, and retirement contributions (SEP-IRA up to 25% of net income).

What percentage should freelancers set aside for taxes?

A safe rule of thumb is to set aside 25–30% of every payment received. This covers SE tax (15.3%) plus federal and possibly state income taxes. Keep this in a separate savings account so you're never caught short when quarterly payments are due.

Should I form an LLC or S-Corp as a freelancer?

An S-Corp election can reduce SE tax once income exceeds roughly $40,000–50,000 by splitting income into salary and distributions. However, it adds complexity and costs (payroll, accounting). Consult a CPA when your net freelance income consistently exceeds $50,000.

💻 Freelancer & Self-Employment Tax Calculator

How Are Freelancers Taxed?

Quarterly Tax Payment Deadlines (2024)

Deductible Business Expenses

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