You started freelancing. What changes at tax time?

No one is withholding for you

As an employee, income tax and Social Security and Medicare tax come out of each paycheck automatically. As a freelancer, consultant or sole proprietor, your clients pay you the full amount, and paying the tax becomes your job.

All of your self-employment income is taxable, whether or not a client sends you a tax form. Clients who pay you $2,000 or more in a year for services generally report it on Form 1099-NEC, but smaller payments, cash and payments through some apps count just the same.

Self-employment tax

Employees pay 7.65% of wages for Social Security and Medicare, and their employer pays another 7.65%. When you work for yourself, you pay both halves, as self-employment tax: 15.3% on 92.35% of your net earnings from self-employment. The Social Security part stops once your combined wages and self-employment earnings reach $184,500 for 2026; the Medicare part has no cap.

Imagine a freelancer with $60,000 of net profit after business expenses. Their self-employment tax is about $8,478, and that’s before any income tax. Half of it, about $4,239, is deductible when figuring income tax, which softens the effect a little.

This is often the biggest surprise for new freelancers, and it’s why rates need to be higher than an equivalent hourly wage. The freelance rate calculator builds it into the rate you’d need to charge.

Paying tax during the year

Because nothing is withheld, the IRS generally expects you to pay estimated tax in four installments if you expect to owe $1,000 or more for the year. For 2026, the due dates are April 15, June 15 and September 15, 2026, and January 15, 2027.

You can generally avoid an underpayment penalty by paying at least 90% of this year’s tax, or 100% of last year’s tax, through withholding and estimated payments. If last year’s adjusted gross income was over $150,000, the prior-year figure is 110%. Basing payments on last year’s tax is often easiest in your first year, because you know the number.

If you also have a job, increasing withholding from your paycheck through a new Form W-4 can cover tax on freelance income instead of, or alongside, estimated payments.

A practical habit is to move a share of every client payment into a separate savings account set aside for tax, so the money is there when each installment is due. Form 1040-ES includes a worksheet to estimate how much.

You only pay tax on profit

Self-employment and income tax apply to your net profit: income minus ordinary and necessary business expenses. Common examples include equipment and software, a portion of your phone and internet, professional insurance, business travel, advertising, and a home office if you use part of your home regularly and exclusively for work.

Many self-employed people may also qualify for the qualified business income deduction, which can reduce taxable income by up to 20% of qualified business income, subject to limits.

Every deduction needs records. Receipts, invoices and a clear record of what was for business make deductions defensible and tax time far simpler. Keeping a separate bank account for the business helps a great deal; there’s more on that in keeping business and personal money separate.

Getting ready

In your first year, it helps to open a separate account for business income and expenses, keep a simple monthly record of income and costs, set aside part of every payment for taxes, and put the estimated tax due dates on your calendar. If your situation is complex, or your income has grown quickly, a tax professional can help you estimate payments and choose a business structure.

The takeaway

Freelancing means paying tax yourself, during the year, on your profit, including both halves of Social Security and Medicare. Setting aside money from every payment, making quarterly payments, and keeping clean records turn April from a shock into a routine.

Written by the Maxint Content team and reviewed by the Maxint Editor team. How we create our content

Sources

• IRS: Self-employment tax (Social Security and Medicare taxes)
• IRS Form 1040-ES (2026): Estimated Tax for Individuals
• IRS Publication 1099 (2026): General Instructions for Certain Information Returns
• IRS: Qualified business income deduction
• IRS: Home office deduction

Keep reading

• Why does it matter whether you keep business and personal money separate?What mixing accounts costs you at tax time and beyond, and a simple way to separate them.
• Which tax records should you keep, and for how long?What to keep for personal and business taxes, and the IRS time limits that decide how long.

This article is general education about US personal finance, based on the assumptions and sources described in it. It isn’t financial, tax or legal advice, and examples use hypothetical people and figures.