Freelance Tax: How to File and Manage Your Tax Obligations

Freelance tax is a tax owed by freelancers, independent contractors, and self-employed individuals.

This accounts for an individual’s income, as well as the Social Security and Medicare taxes that are deducted from their total earnings for the year. However, unlike employees on a regular payroll, freelancers have to track their income, calculate these taxes themselves, and file their own returns.

If it’s your first time handling taxes as a freelance worker, the process can be quite overwhelming. So, in this article, we’ll cover everything you need to know about this type of tax, including the forms used for reporting it and mistakes you should avoid.

Let’s start!

Key Takeaways

• Freelance tax is the amount owed by freelance workers and covers their income, Social Security, and Medicare taxes.
• The forms that freelancers may need when filing their taxes include Form 1040, Form 1040 Schedule C, Form 1040 Schedule SE, Form 1099-NEC, and Form W-9 .
• The common tax deductions freelancers are eligible for include home office, travel and meals, education, self-employment, marketing, and equipment and supplies.
• To stay compliant with freelance tax regulations, it’s important to track your income and expenses, use a paystub generator to create accurate pay slips, submit your quarterly payments to the IRS, and hire a professional to ensure accurate tax filings and deductions.
• Some mistakes you should avoid when filing freelance taxes are underreporting your income, overstating deductions, missing tax deadlines, and failing to pay estimated taxes altogether.

What Are Freelance Taxes and How Do They Work?

Freelance tax, more formally referred to as self-employment tax, is owed by independent contractors. It comprises their Social Security and Medicare taxes, along with their estimated income taxes that they must pay ahead of time.

Employers and employees each share a 6.2% rate for Social Security taxes and a 1.45% rate for Medicare taxes. Independent workers, however, will have to cover the combined Social Security and Medicare tax rates shared between employers and their staff.

In other words, freelancers are obligated to pay 12.4% in Social Security and 2.9% in Medicare taxes, thereby yielding a total of 15.3% in self-employment tax.

Understanding How Freelance Taxes Work

Freelance taxes work just like regular income taxes, with the only difference being the freelancer or contractor is responsible for calculating, filing, and paying the full amount of taxes by themselves.

Moreover, freelancers have to make quarterly estimated tax payments to the IRS because these aren’t automatically taken out from their monthly earnings. Missing a deadline, even if they are entitled to some tax refunds, can lead to hefty fines, so it’s important for them to take note of these dates and file their taxes promptly.

Self-employed individuals are also eligible for tax deductions that can help lower their taxable income and make payments more manageable, which we will discuss later in the article.

5 Key Tax Forms for Freelancers

If you did any independent work for clients during the year, you will be required to file freelance taxes by using some specific tax forms, including:

Form 1040

Form 1040, or the U.S. Individual Income Tax Return, is a document both regular employees and freelancers use to file their tax returns for the current year. If you have multiple sources of income, you’ll need to add these and use the sum to calculate how much taxes you owe before reporting these amounts through the form.

Schedule C

Since freelancers are considered self-employed individuals, they must also file a Form 1040 Schedule C, or Profit or Loss from Business. As the name suggests, you can use this form to report your business’ income and any deductible expenses. That said, if your business has no profit or losses for the year, you won’t need to file this form.

Schedule SE

As mentioned earlier, freelancers must pay freelance taxes or self-employment taxes with the IRS, and this is reported using Form 1040 Schedule SE. Self-employment taxes refer to the 12.4% Social Security tax and 2.9% Medicare tax that get deducted from your net earnings.

Form 1099-NEC

Form 1099-NEC, or Nonemployee Compensation, is issued to self-employed individuals who earn more than $600 in payment from their clients. That said, even if you don’t receive this form, you would still need to include the amount you received in your tax returns if you get paid for freelance work.

Form W-9

If you meet the $600 requirement for Form 1099-NEC, your client will ask you to fill out a Form W-9 or a Request for Taxpayer Identification Number and Certification. This way, you provide them with your name, address, and TIN—the information they can use to report your earnings to the IRS.

6 Common Tax Deductions For Freelancers

Freelancers are also entitled to certain deductions in their taxes, which fall under the following categories:

#1. Home Office

Your home office includes all equipment used for your freelance work, such as your laptop or PC, work desk, printer, etc.

The condition for deducting tax dues through home office expenses is that the space, utilities, and equipment included in your home office must be used exclusively for your self-employment work. You may not use the same space in your home simultaneously for other home activities.

You can deduct home office expenses once or depreciate computer costs as a larger asset and claim the costs later on.

#2. Travel & Meals

All travel and meal expenses included in your tax report must be directly related to the operations and expansion of your freelancing venture for them to qualify as tax deductions.

For instance, if you travel to your work location or have lunch and dinner with your clients, you can deduct your travel and meal expenses from your tax dues.

#3. Education

The key to using education as a viable basis for tax deductions is it should be significant to the nature of your work. Specifically, the subject you are studying should be instrumental in expanding the skill set you use in operating your business.

It may be acquiring certifications or licenses or enrolling in courses that branch out your expertise in your niche. In this case, you can account for the costs of enrolling in additional courses and acquiring certifications and add them to your tax deductions.

#4. Self-employment Tax Deduction

50% or half of the self-employment taxes may be deducted as business expenses on income taxes. That means you can deduct half of the self-employment tax you owe on your Form 1040.

Tax deductions for self-employed workers fall under Social Security and Medicare taxes. The coverage that employees and employers normally split is covered altogether by freelancers or self-employed individuals, making taxes a heavier financial burden.

If you reach a specific income threshold, you are also required to pay an additional 0.9% in Medicare taxes.

Here is a table enumerating the different income thresholds if you are self-employed:

#5. Marketing

Working as a freelancer entails double the effort to ensure you get a steady stream of clients and projects to keep the money coming in.

Are you spending money to promote your business, either through running ads on social media or using traditional marketing methods? If so, then you can keep a record of all expenses involved in promoting your services.

#6. Equipment and Supplies

As a freelancer, you are responsible for buying all the equipment and supplies needed to run your business, which can then be deducted from your taxable income. These expenses can range from computers and cameras to office supplies like notebooks, printer ink, or even software subscriptions.

If you work from home, you may even deduct a portion of your internet and phone bill from your income; anything you use and need for work can count as a tax deduction. What’s important is to keep accurate records of all these purchases and save the receipts to prevent any problems with the IRS.

How to Keep Track of Freelance Tax

The IRS will charge a failure-to-file or failure-to-pay penalty to freelancers who fail to file their tax returns or pay taxes. The penalty can cost between 5% to 25% for unfiled taxes and 0.5% to 25% for unpaid taxes. These penalties are added to the total amount of taxes owed by the independent contractor.

Listed below are some helpful tips to help avoid incurring penalties and ensure you don’t miss anything in your tax reports:

#1. Track Income & Expenses

As a self-employed worker, you must file your estimated taxes quarterly. You must also obtain a social security number and an individual taxpayer identification number.

Using the accrual method is highly recommended if you want to track your income and expenses effectively. It means accounting for both income that is yet to be received and expenses that have not yet been incurred within the year in your revenue.

You can also create a self-employment ledger to record and track expenses and invoices.

#2. Use a Paystub Generator

The use of a pay stub generator, like one from Paystub.org, helps you create clear, professional records of your total earnings. This means you’ll be able to easily access all your income records in one place during the tax period rather than having to sort through countless emails and bank statements.

With a detailed account of your income for the year and neat pay slips, you can accurately estimate how much taxes you owe, which helps reduce the risk of missing deadlines.

#3. Submit Quarterly to IRS

Mark your calendars in advance!

Since self-employment taxes are to be filed quarterly, you must repeat the process four times in a given tax year to account for the four quarters.

The following are the estimated quarterly tax deadlines for the year 2025:

• 1st Quarter covers January 1 to March 31, 2025; deadline: April 15, 2025
• 2nd Quarter covers April 1 to May 31, 2025; deadline: June 15, 2025
• 3rd Quarter covers June 1 to August 31, 2025; deadline: September 15, 2025
• 4th Quarter covers September 1 to December 31, 2025; deadline: January 15, 2026

#4. Consider Hiring a Professional

Hiring a professional to aid you in accounting and filing your freelance tax is a great choice if you are employing staff or have adopted the corporation structure for your freelancing services.

Maximizing the expertise of a certified public accountant (CPA) enables you to file your business taxes accordingly while complying with the regulations set by the IRS and the respective state where you operate your services.

3 Expert Tips for Managing Freelance Taxes

Enumerated below are some tips you can incorporate to make tax filing more manageable for you.

• #1. Know the basics. Check your net profit and net loss to verify whether you are liable to pay income and self-employment taxes. Also, depending on your freelancing gig’s business structure, you may or may not be entitled to certain tax deductions or exempted from additional paperwork.
• #2. Consider the pros and cons of freelancing. Freelancing comes with inconsistent income, shouldering most expenses like repairs, equipment, and utilities, and the absence of employee benefits. Assess whether you can handle the combined perks and responsibilities of an employer and employee and if you can flexibly adapt to the tax obligations of freelancing.
• #3. Set up a personal pension fund. While self-employed individuals are not eligible for employee benefits such as health insurance or retirement benefits, you can set up a pension fund to save up for your retirement. Freelancers are entitled to State Pension, but you can also set up a private pension to get more benefits.

4 Mistakes to Avoid When Filing Freelance Taxes

Freelance taxes can be confusing, especially considering all the tax forms you have to keep track of. To ensure smooth and hassle-free tax filings, you should avoid the following common mistakes:

#1. Underreporting Income

While it can be tempting to only report the income stated on your Form 1099-NEC, the IRS expects you to report all your earnings for the year. This means that even if you didn’t receive a Form 1099 from a client, you need to include the amount you received when filing your taxes.

Underreporting income is a form of tax evasion and is subject to severe penalties and legal repercussions.

#2. Overstating Deductions

Deductions can help lower your taxable income, but claiming too many or overstating your expenses can raise red flags for the IRS and subject your business to scrutiny. To avoid any fines and sudden audits, make sure you only claim tax deductions you are eligible for and that you actually use for the business.

#3. Missing Tax Deadlines

Since self-employed individuals file freelance taxes themselves, it can be easy to miss tax deadlines. Remember, freelancers are required to make estimated payments every quarter and not just once a year. We recommend marking these deadlines in your calendar and setting reminders to avoid potential penalties and interest charges.

#4. Failing to Pay Estimated Taxes

If you are expecting at least $1,000 in federal taxes for the current year, you are required to pay quarterly estimated taxes. Failing to do so can lead to a big tax bill at the end of the year, along with added fines and interest, which can significantly cut into your business’s earnings.

Recent Tax Changes Affecting Freelancers

One of the recent tax changes affecting freelancers is the adjusted Form 1099-K reporting threshold for the year; from $5,000 last year, the minimum payment requirement for 2025 is now $2,500. This means that if you receive a total of $2,500 in payment on third-party online apps or payment cards, you’ll be issued a Form 1099-K.

The standard tax deductions for 2025 have also increased and now reflect these changes:

• Standard deductions for single filers are up by $400.
• Heads of households will see an increase of $600 in their standard deductions.
• Standard deductions for married couples filing jointly increased by $800.

Finally, the IRS announced that the maximum 401(k) contribution for 2025 is now $23,500, which is a $500 increase from last year’s limit.

Final Thoughts

Generating income as a freelancer or independent contractor does not make you exempt from paying taxes. As such, it is your responsibility to know how much taxes you owe, when to file these, and what deductions are applicable to them.

Using a paystub or invoice generator from Paystub.org can make this process even easier and help you maintain clear and organized records of all your earnings. By staying on top of your finances and using the right tools, you can process freelance tax filings smoothly and stay compliant with IRS regulations.

Freelance Tax FAQ

#1. Do freelancers pay taxes in the USA?

Yes. According to the IRS, freelancers are considered self-employed and must therefore file taxes as business owners.

#2. How do I report freelance income in the USA?

Use Schedule C (Form 1040) to report income and losses incurred as an independent contractor or sole proprietor. If your income as a freelancer yields an amount that is less than $400 when expenses are deducted from it, then you have to report your freelance tax on Schedule SE.

#3. What forms do freelancers need to submit?

Freelancers are to submit their Schedule C Tax Form to report all freelance income earned within the year, along with a 1099-MISC form on a Schedule C attachment if a freelancer's client pays them $600 or more for their services.

#4. Can I deduct health insurance premiums as a self-employed individual?

Yes, you can deduct health insurance premiums as a self-employed individual. This deduction includes medical, dental, and long-term care insurance plans for you and your spouse as long as it doesn’t exceed your net income for the year.

#5. What is the difference between self-employed and freelance?

The difference between self-employed and freelance is that the former is a broader term used to describe independent contractors and business owners who work for themselves rather than an employer. Freelance work is categorized as self-employment, which means that all freelancers are self-employed, but not all self-employed individuals are freelancers.