As an independent contractor, you handle your own taxes. No employer withholds money for you, so you track income, set cash aside, pay self-employment tax, and often send the IRS money four times a year. The work is more involved than a W-2 job, but the rules are simple once you know them.

*Werx provides general business and accounting insights for contractors, but we are not a tax, legal, or accounting firm. This content is for informational purposes only and should not be considered professional tax or legal advice. Always consult a qualified accountant or tax professional for guidance specific to your business.*

What is self-employment tax?

Self-employment tax covers your Social Security and Medicare. As a contractor, you pay the full 15.3% on your net earnings: 12.4% for Social Security and 2.9% for Medicare.

A W-2 employee splits that bill with their employer. You do not, so you owe both halves yourself. That is why setting money aside through the year matters so much. Underestimate it and tax season hits hard.

How do you track income as a contractor?

Accurate income records keep you compliant and ready to file.

The 1099-NEC form

Clients who pay you $600 or more in a year usually send a 1099-NEC reporting that income. You will get one from each qualifying client. To see this from the payer's side, read our guide to issuing 1099 forms.

Log every dollar

Record all income, even small jobs that fall under the $600 reporting line. The IRS expects you to report it whether or not a client sends a form. Tools that track earnings by job, like time and materials tracking, keep project income and expenses in one place.

What can you deduct?

Deductions cut your taxable income, so know what counts.

Common business deductions

Typical write-offs include tools, supplies, work travel, advertising, and business utilities. Professional fees count too, like legal help, tax prep, and trade training.

Keep business and personal separate

You can only deduct costs that are ordinary and necessary for the work. A home office can qualify, but the space must be used regularly and only for business. Keeping clean records with tools like estimates helps you tag and document expenses as you go.

How do quarterly estimated taxes work?

If you expect to owe more than $1,000 after withholdings and credits, the IRS wants estimated payments four times a year.

A common rule of thumb is to set aside 25% to 30% of income for taxes. Park it in a separate business account so the money is there each quarter. A QuickBooks integration keeps income tracking and tax planning lined up so you do not get surprised.

How do you prepare for tax season?

Stay organized year-round

Consistent records make filing quick instead of painful. Time tracking helps document billable hours and costs, which feeds clean income summaries at year-end.

Know your federal and state duties

Federal taxes include income tax plus self-employment tax, reported on Schedule C. State rules vary widely. Many states have their own income tax and a separate return, so check your state's requirements.

Get professional help when it counts

A good accountant spots deductions you miss and keeps you out of trouble on complex returns. For digital records that make their job easier, see how payment processing tracks customer payments and invoices.

When should you hire an accountant?

Handle taxes yourself while your work is simple: one state, steady clients, and clear records. Solid bookkeeping and an honest set-aside habit may be all you need.

Bring in a pro once your income climbs, you work in multiple states, or you are unsure about deductions and quarterly math. The fee usually costs less than the penalties and missed write-offs of doing it wrong. For the wider picture of contractor books, see our construction accounting basics guide.

Key takeaways

  • Independent contractors pay 15.3% self-employment tax (Social Security plus Medicare).
  • Report all income, even jobs under the $600 1099-NEC reporting line.
  • Deduct ordinary, necessary costs like tools, travel, professional fees, and a home office.
  • Set aside 25% to 30% of income and pay quarterly if you expect to owe more than $1,000.
  • Contractor software like Werx connects income tracking and QuickBooks so filing is simpler.