The gig economy seems to be the new way of the world. More people than ever are freelancing, earning side income, and becoming small business owners.
After all, isn't that why you're using this calculator? You — and thousands of taxpayers like you — are learning how to navigate 1099 taxes. And that starts with figuring out how much self-employment tax you have to pay.
What does it mean to have 1099 income?
Any income that’s reported on a 1099-NEC or 1099–K is considered “self-employment income.”
Self-employment income is just code for “non-W-2.” It can come from running a small business, freelancing, or just working a casual side hustle.
When you work as a standard employee, your employer automatically withholds your income and FICA taxes (Social Security taxes and Medicare taxes) and pays themto the IRS.
Self-employed individuals, on the other hand, have to calculate and pay these taxes themselves.
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Paying taxes as a 1099 worker
As a 1099 earner, you’ll have to deal with self-employment tax, which is basically just how you pay FICA taxes. The combined tax rate is 15.3%.
Normally, the 15.3% rate is split half-and-half between employers and employees. But since independent contractors and sole proprietors don’t have separate employers, they’re on the hook for the full amount. (To get a sense of how this might impact your taxes, take a look at this 1099 vs. W-2 calculator, which compares your take-home pay from both types of work.)
If you’d like more information on why things work this way, check out our beginner’s guide to self-employment tax.
But for now, think of self-employment tax as those double-pop popsicles. It can be split between two people, but it comes in a single package. There’s no way to avoid paying for both sticks even if it’s just you.
Here's some good news, though: Only your net earnings are subject to self-employment taxes. That’s your gross income minus your business write-offs. (More on this later!)
Income tax vs. self-employment tax: Why you owe both
Many freelancers are surprised to learn they have to pay multiple types of taxes on their return. It seems like it should be an either/or tax situation, right?
Wrong.
Self-employed individuals have to pay both income tax and self-employment taxes.
So what’s the difference? In short, your income tax is assessed on your total income for the year, whereas self-employment tax is assessed on your business income for the year.
Your income tax can be reduced through adjustments (like for self-employed health insurance), the standard deduction or itemized deductions, and tax credits.
Your self-employment tax, on the other hand, can only be reduced through business write-offs and tax credits.
How to pay your 1099 taxes
If you think you might owe more than $1,000 in federal income taxes, you should be making payments throughout the year — not just when you file your return.
These additional payments are referred to as “quarterly” or “estimated” tax payments. You pay your quarterly taxes on the 15th day following the end of the quarter.
For example, let’s say you expect to owe $2,000 in taxes. You would divide that amount by four and make your quarterly tax payments on the following schedule:
| Quarter | Period | Due date | Payment |
|---|---|---|---|
| Quarter 1 | January - March | April 15 | $500 |
| Quarter 2 | April - June | July 15 | $500 |
| Quarter 3 | July - September | October 15 | $500 |
| Quarter 4 | October - December | January 15 | $500 |
We haven’t gotten into all the nitty-gritty here — like the forms that are involved in the filing process. If you’re interested in more details, check out our blog post on how to pay self-employment taxes step by step.
The 3 best ways to lower self-employment tax
Now for the fun part — lowering your tax bill! As I mentioned earlier, the only way to effectively reduce self-employment taxes is to lower your net income.
Here are the three best ways to avoid paying extra taxes on your 1099 income:
Tip #1: Don’t miss your business write-offs
Most write-offs are missed because people don’t keep track of what they buy for work. In the frenzy to pull everything together before taxes are due, eligible write-offs tend to fall through the cracks.
Do yourself a favor and start keeping up with your expenses now. More of your purchases count as business expenses than you might realize, and they could significantly lower your taxable income. Here are a few examples of business tax deductions you can take:
- 📶 Your cell phone and internet bill
- 🚗 Work-related parking fees and toll passes
- 🧑💻 Software subscriptions (such as Office 365)
- 💳 Bank and credit card fees on accounts you use for work
- 🔌 Computers and electronic accessories (chargers, adapter cables, etc.)
- 💻 Platform fees, from Shopify to Patreon
If you’re wondering where to start with this, you’ve come to the right place. The Keeper app is specifically designed for gig and freelance workers in the United States.
The app will find and sort all of your business write-offs automatically. When you’re ready to file, all you have to do is upload your 1099s and we’ll handle the rest.
Tip #2: Consider deferring your business income
This isn’t a feasible option for everyone. (Rideshare or delivery drivers, for example, are locked into a relatively inflexible payment schedule.) But for those of you who invoice clients, consider delaying your December invoicing until the New Year.
Here’s why: A payment you receive on December 31st has to be reported on your tax return by the following April. However, a payment you get on January 1st doesn’t have to be reported until April of the following year. That’s 11 extra months!
Delaying your income by just a few days can give you lots of extra breathing room to plan for taxes.
Tip #3: Prepay your work expenses
If you know you’re in for a painful tax bill, this strategy could help.
Here’s how it works: rather than waiting till January to pay your regularly scheduled bills, pay them in December instead.
For example, if your business rent is due January 5, pay it December 30. This will allow you to claim more deductions in the current tax year — essentially borrowing from next year’s write-offs.
If you’re going to use this strategy, it’s important to look ahead first. Here are some scenarios where prepaying could be a beneficial move and help you save money overall:
- You owe a sizable tax bill and haven’t made any estimated payments.
In this situation, reducing your tax liability by prepaying expenses is a good idea. The lower your tax liability, the less you’ll pay in underpayment penalties and interest. - You don’t expect to have much — or any — self-employment income next year.
People change jobs and hop careers all the time. If you expect a major change to the type of income you’re earning, it’s probably worthwhile to maximize your write-offs now. - You expect to have more tax-saving opportunities next year.
If you recall, only two things can lower self-employment tax: business write-offs and tax credits. So for example, if you plan to enroll in college, you’ll have a sizable tax credit to play with. In that case, borrowing from next year’s write-offs probably won’t hurt you.
You can’t write off an expense that’s more than 12 months away, but this strategy can still give you a bit of much-needed wiggle room during stressful years.
At the end of the day, Keeper has your back. We’re your cheerleader, quarterback, and defensive lineman all rolled into one. Keep using our free tools like this one, and download the app today. Let us help you score a tax refund.
