Filing taxes as an independent contractor
Driving for Uber, delivering meals for DoorDash, or designing websites as a freelancer—there are all kinds of independent contractor jobs available today. With this type of work comes a whole new set of tax responsibilities. If the concept of “independent contractor taxes” is new to you, we encourage you to read on. There’s a lot to consider.
First things first – independent contractor taxes are different than when you’re a W-2 employee. With independent contractor work (sometimes called gig work or self-employment), our clients will ask “why was no federal income tax taken out of my paycheck?”
This is not a mistake. As an independent contractor, you’re required to pay your federal and state (if applicable) taxes on your own, so they are not withheld from your paycheck. Wondering how you’re supposed to figure that all out? Rest easy; we’ve got you covered.
In this post, we’ll touch on the difference between independent contractors and employees. Plus, we’ll cover important elements of independent contractor taxes, such as self-employment tax, quarterly estimated tax payments, and independent contractor tax deductions.
Working as an independent contractor after a job loss? Be sure to visit our Unemployment Resource Center for helpful articles and information.
How do you know if you’re an independent contractor and not an employee? It has to do with whether you or the business that pays you has more control over the details of your work. Consider these questions: Who has the right to control your behavior at work and the financial aspects of your job—or is that something the company decides for you? If you’re not sure, review our post on how to know if you’re an employee or independent contractor.
What if you work as an employee AND an independent contractor? These additional tax responsibilities will generally still apply, so don’t stop reading just yet. You’ll thank yourself when it comes time to file.
Independent contractor taxes: Important concepts
Don’t wait until tax time to find out about these tax responsibilities and considerations. The more you can plan for these items, the easier it will be on you to file your return. Plus, you could also save yourself from a larger than expected tax bill.
- Self-employment tax– This is how you cover Social Security and Medicare taxes for yourself. In an employee-employer situation both parties pay a portion of these taxes. Since you’re self-employed, you’re responsible for both halves. You’ll actually get to deduct the employer portion in the end. To look at the numbers, read our post on Self-Employment Tax.
- Quarterly estimated taxes – Again an employee-employer comparison is helpful here. Employers typically withhold taxes from employee paychecks each period, so taxes are paid as the year goes on. As a self-employed person, you’ll pay as you go too – just on set dates four times a year. Here’s where you can find those estimated tax payment dates.
- Independent contractor tax deductions – This will largely depend on what you do for a living. For example, a freelance web designer may not have any mileage expenses, but they could have home-office expenses to deduct. Review the examples in the independent contractor deduction list below to see what types of tax benefits may apply to you.
- Self-employment tax deduction
- Self-employed health insurance deduction
- Car and driving related deductions – Mileage or actual expenses
- Home-office deduction
- Internet and phone
Wondering what other independent contractor tax deductions you can claim? Whether you work with a tax pro or choose H&R Block Online, we’ll help you determine the tax credits and deductions that apply to you.
How to file taxes as an independent contractor
To complete your taxes, you’ll need to gather all your forms and use them to complete certain forms on your return.
Common tax forms you could receive – Depending on your job type, you may receive a 1099-K or a 1099-NEC (before tax year 2020, you would have received a 1099-MISC). You’ll need to report information from these forms on your individual tax return.
Note: Businesses are only required to send you a 1099-K if you had at least 200 individual payments and $20,000 in payments. Some companies will still send independent contractors this form if they don’t meet the above criteria. Generally, even if they don’t happen to send you the forms, you still need to report the income to the IRS.
Forms you may need for filing – If you are filing taxes as an independent contractor you are treated like you have your own business – even if you did not formally start your own business. As a sole proprietor of that business, you should file your independent contractor taxes on a Schedule C to properly claim your income and related expenses.
To calculate the self-employment taxes mentioned above, you’ll use Schedule SE.
If you have a business entity other than a sole proprietorship or a single member LLC, you’ll need to file a business return instead of reporting your business income on Schedule C.
Getting help with independent contractor taxes
We know taxes for independent contractors can be tricky. But with H&R Block on your side, you can feel confident as you file your taxes.
Ready to file? Take control of your taxes and get every credit and deduction you deserve.
Paycheck Protection Program (PPP) forgiveness is key for struggling businesses that received a loan. Learn more about this feature from H&R Block.
Do you run two or more businesses from your home? Learn from the experts at H&R Block how to claim a home business tax deduction for both on your tax return.
Not sure what you'll need to know about how to start a business? Get business startup tips and learn about business tax requirements with H&R Block.
While the Paycheck Protection Program (PPP) is currently suspended, you can still learn about this major component of the CARES Act from H&R Block.