Self-Employed Federal Income Taxes

Updated for Tax Year 2017


OVERVIEW

Self-employed people are responsible for paying the same federal income taxes as everyone else.


Self-employed people are responsible for paying the same federal income taxes as everyone else. The difference is that they don't have an employer to withhold money from their paycheck and send it to the IRS—or to share the burden of paying Social Security and Medicare taxes. Self-employed people must keep track of their own income, estimate how much tax they owe, and in most cases, makes estimated tax payments throughout the year.

Calculating self-employment income

When you work for someone else, you get a W-2 form from your employer at the end of the year telling you exactly how much money you made. When you're self-employed, you have to figure that out yourself. That means you must keep accurate records of how much money you earn for the work you do and how much you spend to operate your business.

This record keeping is solely your responsibility—after all, you're the boss. At tax time, use Schedule C to report your business income and expenses. Subtract the expenses from the income to get your net profit from self-employment. Your net profit is then included on your personal income tax return and taxed in the same way as your other income. If you do work as an independent contractor, you can expect to receive 1099 forms from your clients, reporting the amounts they paid you during the year.

Self-employment taxes

In addition to income taxes, everyone must pay Social Security and Medicare taxes. If you are self-employed you need to make these tax payments yourself since you don’t have an employer to send it in for you. For 2017, employees pay 7.65 percent of their income in Social Security and Medicare taxes with their employers making an additional payment of 7.65 percent. The Social Security portion of the tax is paid on the first $127,200 of employment income in 2017.

Unfortunately, when you are self-employed you pay both portions of these taxes—for a total of 15.3 percent. However, you get to claim a deduction for a portion of this when you file your tax return. You calculate these employment taxes on a Schedule SE attachment to your personal tax return.

Estimating your income tax

When you're an employee, your employer withholds money for federal taxes out of your paychecks and sends the money to the IRS, so that by the end of the year, your anticipated tax bill should already be substantially paid. If you're self-employed, however, this is another task you have to take care of yourself.

Rather than paying weekly, you must make four estimated tax payments during the year. Because you're doing this while the tax year is in progress, all you can do is provide your best estimate based on the income you earn and recent tax rates.

Alternatives to estimated tax payments

If you have a "regular job" in addition to your self-employment, you may be able to increase your federal tax withholding at that job to cover the taxes on your self-employment income. If you can do so, you won't have to pay estimated taxes. However, if you still owe at least $1,000 even after increasing your withholding, then you must make some estimated tax payments. By year's end, your estimated payments (including employer withholding) must equal at least 90 percent of your tax liability for the current year or 100 percent of your tax liability from last year. If it doesn’t, you may be subject to an estimated tax penalty.

Get every deduction you deserve

TurboTax Deluxe searches more than 350 tax deductions and credits so you get your maximum refund, guaranteed.

For only $59.99$39.99*
Start for Free

Looking for more information?

The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.


Security is built into everything we do
Here's how
* Important Offer Details and Disclosures
  • TURBOTAX ONLINE/MOBILE

  • Try for Free/Pay When You File: TurboTax online and mobile pricing is based on your tax situation and varies by product. Absolute Zero $0 federal (forms 1040EZ/1040A) + $0 state limited time offer only available with TurboTax Free Edition; offer may change or end at any time without notice. Actual prices are determined at the time of print or e-file and are subject to change without notice. Savings and price comparisons based on anticipated price increase. Special discount offers may not be valid for mobile in-app purchases.
  • QuickBooks Self-Employed Offer with TurboTax Self-Employed: To receive your complimentary subscription to QuickBooks Self-Employed through 4/30/19, you must pay for your 2017 TurboTax Self-Employed return by 4/17/18 and sign-in and access your QuickBooks Self-Employed account via mobile app or at https://selfemployed.intuit.com/turbotax at least twice by 7/15/18. You will have the option of renewing your QuickBooks Self-Employed subscription by 4/30/19 for another year at the then-current subscription rate. You may cancel your subscription at any time from within the QuickBooks Self-Employed billing section. See QuickBooks.com for price comparison. Offer not valid for existing QuickBooks Self-Employed subscribers already on a payment plan.
  • Pays for itself (TurboTax Self-Employed): Estimates based on deductible business expenses calculated at the self-employment tax income rate (15%) for tax year 2017. Actual results will vary based on your tax situation.
  • Anytime, anywhere: Internet access required; standard data rates apply to download and use mobile app.
  • Fastest refund possible: Fastest tax refund with e-file and direct deposit; tax refund time frames will vary.
  • Pay for TurboTax out of your federal refund: A $X.XX Refund Processing Service fee applies to this payment method. Prices are subject to change without notice.
  • TurboTax Help and Support: Access to a TurboTax specialist is included with TurboTax Deluxe, Premier, Self-Employed and TurboTax Live; not included with Free Edition (but is available as an upgrade). TurboTax specialists are available to provide general customer help and support using the TurboTax product. SmartLook on-screen help is available on a PC, laptop or the TurboTax mobile app. Service, area of expertise, experience levels, wait times, hours of operation and availability vary, and are subject to restriction and change without notice.
  • Tax Advice, Expert Review and TurboTax Live: Access to tax advice and Expert Review (the ability to have a Tax Expert review and/or sign your tax return) is included with TurboTax Live or as an upgrade from another version, and available through October 15, 2018. These services are provided only by credentialed CPAs, EAs or tax attorneys. State tax advice is free. Some tax topics or situations may not be included as part of this service, which shall be determined in the tax expert’s sole discretion. In the event your return is reviewed by a tax expert and requires a significant level of tax advice or actual preparation, the tax expert may be required to sign your return as the preparer at which point they will assume primary responsibility for the preparation of your return. Expert Review [and TurboTax Live] not available on the TurboTax mobile app or when using a web browser on your mobile phone. On-screen help is available on a PC, laptop or the TurboTax mobile app. Service, area of expertise, experience levels, wait times, hours of operation and availability vary, and are subject to restriction and change without notice.
  • Tax Return Access and My Docs features: Included with TurboTax Deluxe, Premier, Self-Employed, TurboTax Live or with PLUS benefits. Access to all tax-related documents we have on file for you is available through 10/31/2019. Terms and conditions may vary and are subject to change without notice.
  • #1 best-selling tax software: Based on aggregated sales data for all tax year 2016 TurboTax products.
  • Most Popular: TurboTax Deluxe is our most popular product among TurboTax Online users with more complex tax situations.
  • CompleteCheck: Covered under the TurboTax accurate calculations and maximum refund guarantees.
  • #1 rated online tax prep provider: Based on independent comparison of the best online tax software by TopTenReviews.com March 13, 2017.
  • Get tips based on your tax and credit data to help get you to where you want to be: Tax and credit data accessed upon your consent.
  • TURBOTAX CD/DOWNLOAD SOFTWARE

  • TurboTax CD/Download products: Price includes tax preparation and printing of federal tax returns and free federal e-file of up to 5 federal tax returns. Additional fees apply for e-filing state returns. E-file fees do not apply to New York state returns. Savings and price comparison based on anticipated price increase. Prices subject to change without notice.
  • Fastest refund possible: Fastest tax refund with e-file and direct deposit; tax refund time frames will vary.
  • Pay for TurboTax out of your federal refund: A $X.XX Refund Processing Service fee applies to this payment method. Prices are subject to change without notice. This benefit is available with TurboTax Federal products except TurboTax Business.
  • About our TurboTax Product Experts: Customer service and product support vary by time of year.
  • About our credentialed tax experts: Live tax advice via phone is included with Premier and Home & Business; fees apply for Basic and Deluxe customers. State tax advice is free. Service, experience levels, hours of operation and availability vary, and are subject to restriction and change without notice. Not available for TurboTax Business customers.
  • #1 best-selling tax software: Based on aggregated sales data for all tax year 2016 TurboTax products.
  • Data Import: Imports financial data from participating companies; may require a free Intuit online account. Quicken and QuickBooks import not available with TurboTax installed on a Mac. Imports from Quicken (2016 and higher) and QuickBooks Desktop (2012 and higher); both Windows only. Quicken import not available for TurboTax Business. Quicken products provided by Quicken Inc., Quicken import subject to change.