How to File Taxes If You’re Self-Employed

If you earned more than $400 working for yourself last year, the IRS considers you a self-employed individual. This means that along with filing an annual return, you’ll need to pay income taxes and self-employment taxes—and yes, those are two different types of taxes. Plus, if you anticipate owing at least $1,000 on your annual tax return, you’re required to file all your taxes quarterly. (If you’re a freelancer, independent contractor, or sole proprietor, this means you.)

On this page, we explain what the self-employment tax is and how to file it. If you want more information on filing all types of taxes while you’re self-employed, check out our piece on how to file small-business taxes. Or, if you’re a freelancer, see our article on paying taxes as an independent contractor instead.

1. Understand the self-employment tax

Traditional employees pay half of their own Medicare and Social Security taxes, with their employer matching the second half. However, if you’re self-employed, you’re both employer and employee. Along with withholding and filing your own income tax, you’ll also pay both the employee and employer halves of the FICA tax. That’s a 12.4% tax for Social Security and a 2.9% tax for Medicare, or 15.3% total.

While the Social Security tax applies only to the first $137,700 of your income, the Medicare tax applies to your entire income.

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Pro tip: Tax deductions

As a self-employed individual, you can claim the employer portion of your self-employment tax as a deduction. Read the IRS’ guide for a complete list of deductions.

2. Determine if you should pay taxes quarterly or annually

Quarterly payments

If you expect to owe $1,000 or more in income and self-employment taxes when you file your annual return, you must make quarterly estimated tax payments. Generally speaking, that means full-time freelancers, independent contractors, and some small-business owners should file income taxes and self-employment taxes quarterly.

To file quarterly, you’ll need to estimate your gross annual income, then pay your income tax and self-employment taxes based on that estimate. Your estimate needs to be as accurate as possible—otherwise, you could end up owing a heap of taxes on April 15, plus fines for underpaying.

If you want to calculate your quarterly tax payment by hand, use Form 1040-ES, the IRS’ worksheet for tax estimation. In the true spirit of tax forms, the instructions and worksheet are thorough, but confusing. To make sure you’re paying correctly, we recommend talking to an accountant or financial advisor before paying your quarterly taxes for the first time.

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Alternatively, you can use accounting software like QuickBooks Online, which includes built-in quarterly tax estimation.

Annual payments

On the other hand, if you don’t expect to owe more than $1,000 when you file your annual return, you aren’t required to make quarterly tax payments. But before you decide to pay either quarterly or annually, consult with an accountant or tax professional.

If you try to pay a lump sum instead of making quarterly payments, you’ll be charged interest, fines, and other fees. For the sake of your bottom line, you need to establish the right tax-filing schedule right away: speaking with an accountant is the best way to do so.

Annual filing

Whether you pay taxes quarterly or annually, you’ll file an annual tax return. For this process, you submit your quarterly payment and various IRS forms that show exactly how much you earned. (Our piece on small-business taxes, including self-employment taxes, explains that paperwork in detail.)

For most individuals and businesses, annual tax-filing paperwork is due April 15 each year (though some business types need to file by March 15). If you don’t have your paperwork together in time, you can apply for a tax-filing extension. Just remember that while an extension pushes your paperwork deadline back six months, it doesn’t delay your actual tax payment. To avoid late fees and other penalties, you need to pay by the original deadline.

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3. Pay your income and self-employment taxes on time

Once you’ve determined whether you need to pay quarterly or annually and used Form 1040-ES to calculate your income and self-employment taxes, it’s time to pay.

If you’re paying quarterly, your taxes are due on the following dates:

  • January 15, 2021
  • April 15, 2021
  • June 15, 2021
  • September 15, 2021

If you’re paying annually, your filing deadline depends on the type of business you own:

  • Partnerships, S corporations, and multi-member LLCs must file by March 15, 2021.
  • Anyone who files taxes as an individual—which usually includes sole proprietors and single-member LLCs—must file by May 17, 2021. (Taxes are usually due April 15, but the IRS extended this year’s tax-filing deadline to accommodate ongoing economic hardship caused by COVID-19.)

If you’re still not sure when your taxes are due, we recommend consulting with an accountant who can give tax-filing advice specific to your business.

You have a few options for sending your taxes to the IRS. The most straightforward option is to use the IRS’ online payment system. (You can also mail a check, but paying online is simpler and faster.) An accountant or tax professional can file for you. Alternatively, you can use small-business tax software to file your self-employment and income taxes.

The takeaway

There’s no way around it: calculating and paying quarterly self-employment taxes is tedious. But you can speed up the three-step process by consulting with a tax professional the first time you pay self-employment taxes, filing on time, and staying on top of quarterly payments.

Make sure you know all the 2021 tax dates for the 2020 fiscal year—read through our piece on this year’s filing deadlines.

Disclaimer

At Business.org, our research is meant to offer general product and service recommendations. We don't guarantee that our suggestions will work best for each individual or business, so consider your unique needs when choosing products and services.

Kylie McQuarrie
Written by
Kylie McQuarrie
Kylie McQuarrie has been writing for and about small businesses since 2014. Prior to writing full-time, she worked with a variety of small-business owners (from freelance writers to real-estate solopreneurs), which gave her a front-row look at small-business owners' struggles, frustrations, and successes. Currently, she’s Business.org’s accounting and payroll staff writer. Her work has been featured on SCORE.org, G2, and Fairygodboss, among others.
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