Independent contractors pay federal, state, and local taxes. At the federal level, independent contractors are subject to income tax and self-employment tax on their net earnings. Most independent contractors also pay income tax in the state where they live and work. In addition, some cities and counties assess additional business taxes, along with fees for registration or licenses.
Independent contractors expecting to owe more than $1,000 in federal taxes at the end of the year must pay their estimated taxes every three months or face a penalty. The taxes discussed in this article don’t apply to employees whose income is reported on Form W-2. See our comparison of W-2 vs 1099 workers to get clarity on your employment status for tax purposes.
List of Taxes for Independent Contractors
- Federal income tax: This tax is calculated and paid on the contractor’s individual income tax return, Form 1040. Independent contractor taxes at the federal level are based on total income from all sources for the year, minus any tax deductions or tax credits. The tax rate varies from 10% to 37%, based on the level of income.
- Self-employment tax: This federal tax is how independent contractors pay into Social Security and Medicare and is calculated on Form 1040, Schedule SE. The tax rate is 15.3% on net earnings from self-employment up to $176,100 in 2024 ($168,600 for 2024) and 2.9% on net earnings above that threshold.
- Other federal tax: Independent contractors may need to pay other federal taxes depending on their particular financial situation. Other federal taxes include the alternative minimum tax, net investment income tax, and additional Medicare tax.
- State and municipal tax: Independent contractors may need to pay income taxes, business taxes, registration fees, or license fees in the cities, counties, or states where they live and work.
- Use tax: Depending on your state, you may have to pay use tax on items you purchase out-of-state if no sales tax was collected by the seller.
- Sales tax: If you sell products, you’ll need to collect sales tax from customers and remit the sales tax along with the sales tax return to your state.
- Excise tax: In addition to sales tax, certain products and services that you sell may also be subject to excise tax. For example, alcohol, tobacco, firearms, and telephone services are all subject to excise taxes.
Tax Rates for Independent Contractors
Independent contractor tax rates at the federal level vary by income. The federal income tax rate starts at 10% and gradually increases to 37% based on a person’s filing status and taxable income after deductions.
Tax Rate | Single Filers | Married Filing Jointly Filers | Head of Household Filers |
|---|---|---|---|
2024 Tax Brackets and Federal Income Tax Rates | |||
10%Â | $0 to $11,600 | $0 to $23,200 | $0 to $16,550 |
12% | $11,601 to $47,150 | $23,201 to $94,300 | $16,551 to $63,100 |
22% | $47,151 to $100,525 | $94,301 to $201,050 | $63,101 to $100,500 |
24% | $100,526 to $191,950 | $201,051 to $383,900 | $100,501 to $191,950 |
32% | $191,951 to $243,725 | $383,901 to $487,450 | $191,951 to $243,700 |
35% | $243,726 to $609,350 | $487,451 to $731,200 | $243,701 to $609,350 |
37% | $609,351 or more | $731,201 or more | $609,351 or more |
2025 Tax Brackets and Federal Income Tax Rates | |||
10% | $0 to $11,925 | $0 to $23,850 | $0 to $17,000Â |
12% | $11,926 to $48,475 | $23,851 to $96,950 | $17,001 to $64,850 |
22% | $48,476 to $103,350 | $96,951 to $206,700 | $64,851 to $103,350 |
24% | $103,351 to $197,300 | $206,701 to $394,600 | $103,351 to $197,300 |
32% | $197,301 to $250,525 | $394,601 to $501,050 | $197,301 to $250,500 |
35% | $250,526 to $626,350 | $501,051 to $751,600 | $250,501 to $626,350 |
37% | $626,351 or more | $751,601 or more | $626,351 or more |
The self-employment tax rate has two components, for a total of 15.3%.
- The 12.4% Social Security tax on net earnings up to a maximum limit, which is $176,100 for 2025 ($168,600 for 2024).
- The 2.9% Medicare tax, which applies to all net earnings as an independent contractor.
Self-employment Tax Rates for 2024 and 2025 | |||
|---|---|---|---|
 | On Net Self-employment Earnings Up To | ||
 | Tax Rate | Year 2024 | Year 2025 |
Social Security | 12.4% | $168,600 | $176,100 |
Medicare | 2.9% | All SE Earnings | All SE Earnings |
State-level income tax rates for independent contractors vary based on the state in which the contractor resides; each sets its own income tax rates. If the independent contractor’s office or business has a location in multiple states, the contractor might also have filing and tax payment requirements in more than one state.
Select a state from the drop-down to see that state’s highest income tax rate:
There are also other taxes that are not based on income that states might assess for independent contractors. For example, you may have to collect and remit sales tax if you sell products. There may also be excise taxes for the sale of certain items, like alcohol and tobacco, and the state government decides which items are subject to excise tax. In addition, states may also have other local and municipal taxes, as determined by your geographical location.
Top Tax Deductions for Independent Contractors
There are a variety of tax deductions available to independent contractors. A few of the top independent contractor tax deductions are home office expenses, computer and equipment purchases, health insurance, retirement savings, and other expenses related to their trade or business.
Independent contractors who work from home can deduct part of their rent or mortgage, utilities, and other home-related expenses like repairs or property insurance. The amount of the home office tax deduction is based on the size of the office space as a percentage of the total square feet of the house. The office space must be regularly and exclusively used for business.
Self-employed taxpayers can deduct the health insurance premiums they pay for themselves, their spouse, and their dependents. The deduction includes premiums paid for medical insurance, dental insurance, and long-term care insurance. The self-employed health insurance deduction reduces your income tax but not your self-employment tax.
Besides traditional independent retirement accounts (IRAs) and Roth IRAs, independent contractors can deduct up to $70,000 for 2025 ($69,000 for 2024) by setting money aside through a small business retirement plan, like a simplified employee pension-IRA (SEP-IRA) or a solo 401(k). As with health insurance, retirement contributions reduce your income tax but not your self-employment tax.
Businesses, including independent contractors, can write off the cost of computers, software, machinery, equipment, desks, chairs, and furniture. These asset purchases are traditionally deducted over several years as depreciation expenses. However, many assets can be immediately deducted using the Section 179 deduction or bonus depreciation.
Independent contractors can deduct costs related to driving their car, truck, or SUV for business. The tax-deductible portion is based on miles the vehicle is driven for business compared with the total miles for the year. The purchase price is deducted as car depreciation.
Additional car expenses include gas, insurance, registration fees, and repairs. Instead of deducting actual expenses, it’s much simpler to use the IRS’s standard mileage rate, which is 67 cents per mile for 2024.
Small business owners can deduct up to 20% of their net earnings. The IRS’s qualified business income deduction doesn’t require spending money, unlike other deductions. Instead, the amount of the deduction varies based on the independent contractor’s income for the year and the nature of their trade or business.
Contractors often hire subcontractors to help them complete their projects. Amounts paid for contract labor are tax-deductible. Be aware that independent contractors may need to report on Form 1099 the amounts paid to other contractors if they exceed $600 for the year.
All ordinary and necessary business expenses are deductible. This can include costs for liability insurance, phone service, internet service, business cards, memberships in professional organizations, professional education courses, office supplies, reference books, and tools.
Inability to Pay Taxes and Related Penalties
If you don’t have the money to pay your taxes, you can apply for an installment agreement by completing IRS Form 9465. Qualified individuals may also make an online request for installment payments. Here are the qualifications for an individual’s payment plan:
- For a long-term payment plan, you owe $50,000 or less.
- For a short-term payment play, you owe $100,000 or less
- You prove that you don’t have the money to pay the taxes
The IRS charges penalties for paying taxes after the April 15 deadline. The penalty for not filing a tax return is 5% per month of the balance you owe, not to exceed 25% of the total tax due. If you file your tax return on time but don’t pay the outstanding balance, the IRS will charge you a late payment penalty of 0.5% of the actual tax owed for each month that the tax remains unpaid from the due date until the tax is paid in full.
How to File Your Independent Contractor Taxes
Calculating and filing business taxes as an independent contractor can be summarized in eight steps.
- Step 1: Organize your income and expenses for the year. You’ll need to know how much money you received as an independent contractor and how much you spent on various tax-deductible expenses. You can do this using an accounting system such as QuickBooks Online, which will allow you to categorize the money you earn and spend throughout the year (get more details through our QuickBooks Online review). The result is a detailed summary of your income and expenses.
- Step 2: Report income and deductions on your Form 1040, Schedule C. Independent contractors who operate as sole proprietors or single-member LLCs report their self-efmployment income and business-related deductions on Schedule C, which is included with the contractor’s Form 1040. Other income—such as interest, dividends, and rental income—is also reported on Form 1040.
- Step 3: Report your net self-employment income on Schedule SE. Your self-employment income flows from Schedule C to Schedule SE, where your self-employment tax is calculated. The tax calculated on Schedule SE will carry over to the taxes section of your Form 1040.
- Step 4: Report nonbusiness income and deductions on Form 1040. On your Form 1040, you must list all of your other income—such as wages, interest, rental property income, and other similar sources. You also have to report nonbusiness deductions—like itemized deductions, health insurance for self-employed people, charitable donations, and student loan interest.
- Step 5: Calculate the total federal taxes due. Your Form 1040 combines your income tax and self-employment tax due to show your total tax liability. Any estimated tax payments you made during the year are subtracted, leaving you with either a balance due or a refund.
- Step 6: Calculate your estimated taxes for the upcoming year. After finishing your tax return, you must estimate how much tax to pay for the upcoming tax year. If you want help estimating your taxes for the next year, Bench provides tax services in addition to bookkeeping (read our review of Bench for details).
- Step 7: Complete your state income tax returns. Most states require a separate income tax return, but the specific forms and requirements vary greatly. You’ll need to do some research or use a program like TaxAct to determine your state’s requirements. States often also require independent contractors to make estimated tax payments during the year.
- Step 8: Pay quarterly estimated taxes throughout the year. As an independent contractor, you usually don’t have tax withholding like employees do, but you will still owe taxes throughout the year like all taxpayers. Estimated tax is a way to pay tax on income that is not subject to withholding.
Generally, you’ll have to make estimated tax payments if you expect to owe $1,000 or more in taxes when your return is filed. You’ll make these payments every three months according to the following schedule:
Period Income Earned | Due Date |
|---|---|
January 1 to March 31 | April 15 |
April 1 to May 31 | June 15 |
June 1 to August 31 | September 15 |
September 1 to December 31 | January 15 of the following year |
You can pay your estimated taxes by doing the following:
- Mailing IRS Form 1040-ES
- Using IRS’s online platform
- Calling by phone
- Using the IRS2Go mobile app
Payments must be made on time to avoid potential penalties and interest exposure. Also, note that if you are an independent contractor who also has a job where you receive a W-2 at the end of the year, the withholding from your employer counts toward your total tax due at the end of the year.
Independent Contractor Return Types & Due Dates
Independent contractors who are sole proprietors report taxable income and expenses on Form 1040, Schedule C, though many also choose to form an LLC, C-corp, or S-corp. Each formal entity type has advantages and disadvantages, and the choice depends on each contractor’s specific situation.
Return Type | Due Date |
|---|---|
Sole proprietors and C-corps | April 15 but can be submitted by October 15 if a timely extension is filed |
LLCs and S-corps | March 15—or September 15, if extended |
Single-member LLC | April 15, with the independent contractor’s individual tax return |
How to Keep Your Independent Contractor Taxes Organized
Frequently Asked Questions (FAQs)
The filing due date for Form 1099-NEC is January 31, for both paper and electronically filed returns. If you are expecting this form, you should receive it by early February.
For tax purposes, self-employed and independent contractors are treated the same. People generally refer to someone as an independent contractor if they do most of their work for just a couple of customers but maintain control over how they complete the work. Self-employed people generally run a business that serves many different customers.
The amount you should save for taxes will vary from person to person, depending on your individual tax situation. In the absence of any additional information, some advisors recommend setting aside 35% of net income, which would be right around the midpoint of the individual income tax brackets plus self-employment tax.What taxes do independent contractors pay?
Independent contractors may be responsible for federal and state income tax as well as excise and sales taxes. State and local jurisdictions may also assess additional taxes, depending on the independent contractor’s location.
Taxes for an independent contractor will be calculated based on the independent contractor’s income from all sources, including employment income, interest, and dividends. The total amount of the contractor’s income less expenses will be the basis for any income and self-employment tax assessed.
Bottom Line
Independent contractors pay federal and state tax on their net earnings, which is the income from a trade or business minus any related business deductions. Estimated taxes on this income typically are paid in advance four times a year. Independent contractors fill out Form 1040 and Schedule C to report their income and deductions. They use Schedule SE to figure out their self-employment tax.
