W-2 Employee vs. 1099 Contractor
A W-2 employee has taxes automatically withheld from every paycheck by their employer, who also pays half of the Social Security and Medicare tax on the employee's behalf. A 1099 contractor — a freelancer, gig worker, or consultant — receives the full payment with nothing withheld, and is responsible for calculating and paying all their own taxes, including both halves of Social Security and Medicare.
You'll get a 1099 form if you earned $600 or more from a single client or platform in a year — this includes Uber and Lyft drivers, DoorDash and Instacart couriers, Upwork and Fiverr freelancers, tutors, designers, consultants, and independent contractors of every kind. Important: you legally owe tax on freelance income even if a client never sends you a 1099 at all. The form is just a paper trail — your tax obligation doesn't depend on receiving it.
Self-Employment Tax — 15.3%
This is the tax that surprises new freelancers the most. Self-employment tax is 15.3% of your net profit, made up of 12.4% for Social Security and 2.9% for Medicare. A W-2 employee only pays half of this (7.65%) because their employer pays the other half. As a freelancer, you're both the employee and the employer, so you pay the full 15.3% yourself — on top of regular federal and state income tax.
A simple safety habit: every time you get paid, immediately move 30 cents of every dollar into a separate savings account earmarked for taxes. This roughly covers self-employment tax plus income tax for most freelancers. Never spend from that account — treat it as money that was never really yours.
Quarterly Estimated Tax Deadlines
Because no one withholds tax from your freelance income throughout the year, the IRS expects you to pay it yourself in four installments:
| Quarter | Covers Income Earned | Payment Due |
|---|---|---|
| Q1 | January - March | April 15 |
| Q2 | April - May | June 16 |
| Q3 | June - August | September 15 |
| Q4 | September - December | January 15 |
Miss a deadline and the IRS charges an underpayment penalty, currently around 8% annually on the amount that was due but unpaid. This penalty applies even if you pay everything in full by April 15 the following year — the IRS wants the money on the quarterly schedule, not just eventually.
Schedule C — Reporting Your Income
Freelance income and business expenses are reported on Schedule C, attached to your regular Form 1040 tax return. Schedule C is where your gross freelance income meets your business deductions to calculate your net profit — and net profit is the number self-employment tax and income tax are actually calculated on, not your gross earnings.
Deductions That Lower Your Tax Bill
Every legitimate business deduction reduces your taxable income dollar for dollar. Common ones freelancers overlook or underclaim:
- Home office: calculated as the percentage of your home's square footage used exclusively for work
- Business phone and internet: the business-use percentage of your bill
- Equipment and software: laptops, cameras, subscriptions, tools directly used for your work
- Mileage: 67 cents per mile (2024 rate) for business driving, tracked with a mileage log or app
- Health insurance premiums: 100% deductible if you're self-employed and not eligible for an employer plan
- SEP-IRA contributions: up to 25% of net self-employment income, which reduces taxable income while building retirement savings
Wave offers free invoicing and basic bookkeeping built for freelancers. A simple mileage tracking app on your phone automatically logs business driving so you're not reconstructing trips from memory in April. Both take minutes to set up and can save hundreds of dollars in missed deductions over a year.
If You Miss a Quarterly Payment
Don't panic, but don't ignore it either. Pay what you owe as soon as you realize it, since the penalty accrues based on how late and how much was underpaid — the sooner you pay, the smaller the penalty. If you consistently owe a large amount every April, that's a signal to increase your quarterly payments going forward, not a signal to skip them altogether.