Self-Employed Contractor Tax in the USA: What You Need to Know
Self-employment tax is one of the biggest financial surprises for newly independent contractors in the US. Unlike employees, who have federal taxes withheld from each paycheck, self-employed contractors pay their own income tax and self-employment tax — and must do so quarterly. Here is what you need to know to stay compliant and keep more of what you earn.
Self-Employment Tax: The Basics
Self-employment tax covers Social Security and Medicare contributions — 15.3% of net self-employment income (12.4% for Social Security, 2.9% for Medicare). Employees pay half of this through payroll tax withholding; their employer pays the other half. As a self-employed contractor, you pay both portions. The one partial offset: you can deduct half of your self-employment tax from your gross income when calculating federal income tax.
Quarterly Estimated Tax Payments
Self-employed contractors are required to make quarterly estimated tax payments to the IRS if they expect to owe $1,000 or more in federal tax for the year. The payment schedule runs: April 15, June 15, September 15, and January 15 of the following year. Missing these payments results in underpayment penalties. The IRS estimated tax guidance covers the calculation in detail.
Deductible Business Expenses
The tax bill for self-employed contractors is significantly reduced by legitimate business deductions. Common deductible expenses for contractors: tools and equipment, vehicle use for business (either actual expenses or the standard mileage rate), phone and data costs for business use, insurance premiums, licensing and certification fees, continuing education, home office if you have a dedicated workspace, and health insurance premiums.
Working With a CPA
For most self-employed contractors, working with a CPA who understands trades businesses is worth the annual cost. The combination of depreciation on equipment and vehicles, retirement account contributions (a Solo 401(k) or SEP-IRA), and optimised deduction strategies typically saves more in tax than the CPA’s fee costs. The IRS self-employed tax centre is a useful reference for planning.
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Download CoreQuote Free on Android15.3% of net self-employment income — covering both employee and employer portions of Social Security and Medicare. Half is deductible from gross income for federal income tax purposes.
Quarterly — April 15, June 15, September 15, and January 15. Missing payments results in underpayment penalties regardless of paying in full at year end.
Tools, vehicle costs, insurance, licensing, phone, continuing education, and home office costs are all commonly deductible. A CPA familiar with trades businesses will identify the full range for your situation.
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