Estimate your SE tax, federal income tax, and quarterly payments as a freelancer or 1099 contractor.
When you work for an employer, Social Security and Medicare taxes (FICA) are split 50/50 — you pay 7.65% and your employer matches it. As a self-employed person, you pay both halves: the full 15.3%. This is what's called the Self-Employment (SE) tax.
The IRS allows you to deduct half of your SE tax from your gross income before calculating federal income tax. This mirrors the employer-side deduction that W-2 employees benefit from indirectly. It's one of the few consolations of self-employment.
W-2 employees have taxes withheld automatically each paycheck. Self-employed people don't — but the IRS still expects payment throughout the year. If you owe more than $1,000 at filing time, you may face an underpayment penalty. Quarterly estimated payments (due April, June, September, January) prevent this.
The safe harbor rule: pay at least 100% of last year's tax liability (110% if your income exceeded $150,000) and you avoid penalties regardless of what you actually owe.
Home office, health insurance premiums (100% deductible if you're not eligible for employer coverage), half of SE tax, retirement contributions (Solo 401k up to $69,000 in 2024), professional subscriptions, software, and vehicle mileage for business use. These reduce both federal income tax and, in some cases, SE tax.