Self-Employed and 1099 Taxes: A Guide for Contractors and Gig Workers
If you drive for Uber or Lyft, deliver food, do contract work or run a small business on your own, no employer is withholding tax for you. Here's how self-employment tax works, how to avoid a big bill in April, and the deductions that lower what you owe.
By the Enrolled Agents and CPAs at A&W Tax Services · Updated
Self-employment tax
On top of income tax, self-employed people pay self-employment tax: 15.3% of net earnings, covering both the employee and employer shares of Social Security (12.4%) and Medicare (2.9%). It applies once your net self-employment earnings reach $400 for the year.
It's figured on 92.35% of your net profit, the Social Security portion stops at that year's wage base, and you deduct half of it when figuring your income tax. Because it's based on profit, every legitimate business expense lowers it.
Income counts with or without a 1099
You'll often get a Form 1099-NEC from clients or a 1099-K from payment apps and platforms, but all business income is taxable whether or not a form arrives. Cash, Zelle, Venmo and tips all count. Rideshare and delivery summaries often show gross fares before the platform's fees, and those fees are deductible.
Quarterly estimated taxes
If you expect to owe $1,000 or more when you file, the IRS expects you to pay during the year using Form 1040-ES. The due dates are April 15, June 15, September 15 and January 15 of the following year.
You avoid an underpayment penalty if you pay at least 90% of this year's tax or 100% of last year's (110% if last year's adjusted gross income was over $150,000). Setting aside 25–30% of each payment you receive is a simple habit that keeps most people covered.
Deductions contractors often miss
- Vehicle use: the standard mileage rate or actual expenses, for business miles only
- Platform fees, commissions and phone mounts or other driving equipment
- The business share of your phone and internet
- A home office used regularly and only for the business
- Tools, supplies, software and equipment
- Health insurance premiums, if you aren't eligible for an employer's plan
- Retirement contributions to a SEP-IRA or solo 401(k)
- The qualified business income deduction, worth up to 20% of eligible profit
Records to keep
Keep a mileage log with dates, miles and purpose; a tracking app does this automatically. Save receipts, and use a separate bank account or card for the business so income and expenses are easy to prove. Good records are what make your deductions hold up if the IRS asks.
When to consider an LLC or S corp
Once your profit is steady and substantial, an S corp election can reduce self-employment tax by splitting income between a reasonable salary and distributions. It adds payroll and paperwork, so it isn't right for everyone. Our LLC vs. S corp guide walks through the trade-offs.