Independent Contractor Taxes: A Complete Guide for 2025

Being an independent contractor has many advantages but also some unique tax responsibilities. From paying self-employment tax to filling out specific tax forms, freelancers and other self-employed people need to make special considerations when filing their independent contractor taxes.

In this guide, we’ll explain everything independent contractors need to know about taxes in 2025, including determining whether the IRS considers you an independent contractor, defining your tax obligations, common deductions you can claim, and how to file taxes as an independent contractor. Let’s take a look.

Key Takeaways

• Independent contractors (also called freelancers) are self-employed individuals who are hired by another person or entity to complete work but are free to carry out the work however they see fit—they are not W-2 employees.
• Independent contractors are self-employed and have some unique tax requirements, including paying a self-employment tax of 15.3% and being required to pay estimated taxes 4 times per year. 
• Freelancers work in almost every industry and can be considered independent contractors whether they’re sole proprietors, limited liability companies (LLCs), or follow a corporate structure.
• Freelancers trigger self-employment tax requirements if their net self-employment income is more than $400 in a given tax year.
• Independent contractors must complete a few unique IRS tax forms, including Form 1040-ES, Form 1099-NEC, Schedule C, Schedule SE, and potentially Form 1099-K.
• Independent contractors must meet 4 quarterly tax payment deadlines (April 15, June 15, Sept. 15, and Jan. 15).
• Independent contractors may be able to claim several tax deductions, including home office expenses, work vehicle costs, business travel, phone, computer, and internet service, health coverage, 50% of self-employment tax, and possibly 20% of taxable income.
• To file taxes as an independent contractor, you must compile all documents related to income and expenses, determine your net total profit or loss, file self-employment taxes, and make estimated tax payments each quarter. 

Table of Contents

• What Is an Independent Contractor?
• Who Is Considered an Independent Contractor?
• Independent Contractors Tax Requirements
• Independent Contractor Tax Deadlines
• Independent Contractor Tax Deductions
• How to File Taxes as an Independent Contractor
• Use Freshbooks to Streamline Your Tax Process
• FAQs About Independent Contractor Taxes

What Is an Independent Contractor?

The IRS defines an independent contractor (also known as a freelancer) as a self-employed person who is hired to perform work or provide services to another person or entity as a non-employee while being in control of the way the work is completed.

As an independent contractor, you work for yourself, which means you’re responsible for paying your own Social Security and Medicare taxes. You’re also required to pay for any employment benefits you’d like, including ones an employer would normally contribute to, such as health insurance and retirement accounts. Because of this, independent contractors have unique tax requirements compared to employees.

Who Is Considered an Independent Contractor?

How do you know whether or not you’re considered an independent contractor for tax purposes? Independent contractors have a few key characteristics that define them, particularly their control over how they perform the work. When hiring a freelancer, companies usually only have a say on the outcome of the work and not on other factors such as the process or the amount of time spent on it. Independent contractors work across nearly every industry, including:

• accounting
• writing
• hairdressing
• landscaping
• electrical
• medical
• dental
• legal

Independent contractor status can also apply across a few different business structures, such as a sole proprietorship, where a single person runs the business. But if you form a limited liability company or adopt a corporate structure for your business, you can still be classified and taxed as an independent contractor if you’re not an employee. 

Independent Contractors Tax Requirements

Freelancers have no employer to withhold taxes from their paychecks, so they must manage their own tax requirements, including self-employment tax, federal income tax, and local and state income taxes. Contractors must withhold money from their net income for tax purposes, ensuring they can pay on time and avoid penalties.

Self-Employment Taxes

As a freelancer filing your 2024 taxes, you must pay a 15.3% self-employment tax on 92.35% of your annual net earnings, assuming you earned more than $400. This tax covers your FICA contributions, which go to Social Security and Medicare taxes. 

In a typical employment situation, you would pay 7.65% of your income towards FICA via tax withholdings from your paycheck, with your employer matching the 7.65% for a total of 15.3%. However, since freelancers don’t have an employee to split their FICA bill with, paying the entire 15.3% falls to them. 

For the 2024 tax year, there’s a limit to how much of your earnings are subject to the Social Security tax, known as the Social Security wage cap. This tax year, the IRS won’t charge Social Security tax on earnings above $168,600. However, you might have to pay an additional 0.9% in Medicare taxes if you earn more than $200,000 as a single filer or more than $250,000 if married and filing jointly.

Income Thresholds

The income thresholds that trigger tax filing requirements for independent contractors are quite low. Anyone who earns more than $400 a year working as a self-employed individual pays independent contractor taxes.

Also, you will receive Form 1099-NEC if you earn more than $600 from any individual client. This form reports compensation for non-employees (such as freelancers). Your client will send you one copy and send another copy to the IRS at tax time.

Quarterly Estimated Taxes

If you expect a tax bill of $1,000 or more for the current tax year, you must pay estimated quarterly taxes. This means calculating the approximate amount you’ll owe in income tax by the end of the year and then dividing that number by 4. You’ll pay these taxes in quarterly installments—if your quarterly estimated payments don’t add up to at least 90% of your total tax liability for the current year (or 100% for previous years), you’ll possibly be subject to underpayment penalties—the size of which depends on the amount you underpaid. 

Independent Contractor Tax Forms

There are a few key tax forms that independent contractors need to be familiar with in order to meet their tax obligations, pay taxes on time, and ensure compliance. These forms include:

• Form 1040-ES: A form used to calculate and pay quarterly estimated tax payments
• Form 1099-NEC: A form sent to independent contractors by any client or business that paid them $600 or more during the tax year
• Schedule C: A part of Form 1099, which you use to report business profit or loss if you’re an independent contractor operating a sole proprietorship
• Schedule SE: A part of Form 1099, which you use to file and report your self-employment tax
• Form 1099-K: A form received by freelancers who receive payment from third-party platforms (e.g., FreshBooks Payments, Venmo, PayPal, etc.) if you received more than $5,000 in payments using the platform that year

Independent Contractor Tax Deadlines

Independent contractors must follow the following tax deadlines:

Quarterly Estimated Tax Deadline

For the 2024 tax year, the quarterly estimate tax deadlines are as follows:

• April 15 (for income earned from Jan. 1 to March 31)
• June 15 (for income earned from April 1 to May 31)
• Sept. 15 (for income earned from June 1 to Aug. 31)
• Jan. 15 of the following year (for income earned from Sept. 1 to Dec. 31)

Personal Income Tax Deadline

The due date for personal income tax filing is April 15, 2025, assuming you’re a calendar year filer and your tax year ends on Dec. 31. If you apply for an extension, you can extend the due date by 6 months to Oct. 15.

State Tax Deadline

In addition to the quarterly estimated tax payment deadlines, you might have to meet deadlines for state income tax. Check with your state’s business resources for information on state tax deadlines you’ll need to meet. 

Independent Contractor Tax Deductions

While the tax requirements of independent contractors may feel much higher than those of employees, you have the advantage of being able to claim tax deductions. When done correctly, tax deductions can significantly lower your tax bill, saving you money throughout the year. Here are a few common deductions you might be able to claim as a freelancer when paying taxes:

Home Office Deduction 

If you use a space in your home solely for business purposes, you can deduct a fraction of associated home expenses from your income taxes. This includes rent, mortgage interest, home insurance, home maintenance, and repairs.

Automobile Deduction

Do you drive a car for your independent contractor work? If so, you might be able to deduct some of the expenses of owning the vehicle from your taxes. You can either take the standard IRS mileage deduction of $0.67 per mile driven or itemize and deduct your actual expenses. This is a great deduction for rideshare drivers or anyone who relies on a car to complete their freelance work.

Cellphone, Internet, and Computer

If these devices are necessary to complete your work as an independent contractor, you can deduct their cost from your income taxes. Your deduction is proportional to how long you use the devices for work. For example, if you use your cell phone for work 40% of the time and for other purposes during the other 60%, you could claim 40% of the cost of the cell phone and cellular plan from your taxes.

Business Travel

If you have to travel for your freelance work, you can usually claim the associated expenses as a tax deduction. This includes airfare, luggage fees, and lodging. However, the IRS doesn’t allow deductions for any business travel it deems “lavish or extravagant” and won’t let you take deductions for any travel for personal purposes.

Health Insurance

If you choose to pay for health insurance yourself, you can deduct the cost of the premiums from your income taxes and premiums for your spouse and dependents. You can only claim this deduction if neither you nor your spouse qualify for employer-sponsored health coverage.

Self-Employment Taxes

You can deduct 50% of the 15.3% you pay in self-employment tax when you pay income tax.

Qualified Business Income (QBI)

Freelancers can deduct up to 20% of their taxable income from their taxes, though the qualified business income deduction is phased out at higher income levels. 

How to File Taxes as an Independent Contractor

Although filing taxes is more complex for independent contractors, the procedure is pretty straightforward once you learn the main steps. One of the most important things is maintaining well-organized records, which will make it much easier to manage your tax liability throughout the year. When it comes time to file and pay your taxes, the steps are as follows:

1. Compile documents: Gather all 1099 Forms and any other income statements you’ve collected over the course of the year to calculate your earnings. Then, gather your receipts for deductible expenses and your bank or credit card statements to calculate business expenses.
2. Calculate net profit/loss: With your income and expense information compiled, use the documents to calculate whether your business made an overall profit or a loss for the year. If your expenses are higher than your profit, it was a loss-making year, and if your profit was higher than your expenses, it was a profit-making year. Determine the exact amount that you profited or lost, and report it on Schedule C of your IRS Form 1040.
3. File self-employment taxes: Using Schedule SE on your Form 1040, calculate and report your self-employment tax (15.3%). You’ll write the total amount you owe under “other taxes” on Form 1040.
4. Make quarterly tax payments: Use Form 1040-ES to calculate how much you’ll need to pay in estimated quarterly tax payments. You’ll base this amount on your projected adjusted gross income (AGI), taxable income, and any tax deductions or credits you claim.

Use Freshbooks to Streamline Your Tax Process

Are you an independent contractor looking to make the tax process simpler? FreshBooks is here to help. FreshBooks accounting software is a great way for independent contractors and freelance workers to manage their finances, prepare for tax filing, and pay on time to avoid tax penalties. 

With automatically generated reports, expense tracking features, and built-in tax compliance tools, it’s an all-in-one solution to taxes for freelancers, saving you valuable time at a much lower cost than hiring a tax professional. If you’re ready to make tax time easy, try FreshBooks for free!

FAQs About Independent Contractor Taxes

Are you still wondering about your tax obligations as an independent contractor? Here are a few frequently asked questions to help clear things up.

How Do I Calculate Taxes as an Independent Contractor?

To determine your tax obligations as an independent contractor, start by calculating 15.3% of your annual income for self-employment taxes (for Medicare and Social Security taxes). Then, look at the income brackets to determine how much you’ll owe in income tax based on your annual income.

How Much Money Should I Set Aside for Taxes as an Independent Contractor? 

You should set aside 15.3% of your earnings to pay for self-employment taxes and then another amount (10% to 37%) for federal income taxes, depending on your annual income and which tax bracket you fall into as a freelancer.

Do Independent Contractors Get Tax Refunds?

Getting a tax refund as an independent contractor is possible if you overpay on your quarterly estimated tax payments. If so, you’ll receive a tax refund after you file your annual income taxes. Generally, most freelancers don’t expect to receive a tax refund.

What Is the IRS Tax Rate for Independent Contractors?

The tax rate for self-employed individuals is 15.3% (in addition to your income tax rate, which depends on your income amount). Self-employment taxes pay for your Social Security and Medicare taxes, typically split between an employer and an employee.

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