AptKeysWork · Side income and self-employment
Self-employment taxes
Gig, freelance or side-hustle money with net earnings of $400 or more means you must file a return and pay self-employment tax: 15.3% (12.4% Social Security plus 2.9% Medicare), on top of regular income tax. Nobody withholds it, so set money aside from every payment, keep receipts to deduct expenses, and if you'll owe $1,000 or more, pay estimated tax by April 15, June 15, September 15 and January 15.
You'll need
- A list of what you earned from each app or client
- Receipts for work expenses
- A separate savings account for taxes
What to know
- Know if this is you. If you're an independent contractor (driving rides or deliveries, running errands, selling online, freelancing), you're self-employed. If you do gig work as an employee, your employer withholds tax instead. Not sure which? Ask, or use the IRS worker-status tool.
- Know the trigger. You must file a return and Schedule SE if your net earnings from self-employment were $400 or more, even for a side, part-time or temporary job. The rules apply at any age.
- Know the rate: 15.3%, which is 12.4% for Social Security and 2.9% for Medicare. It's similar to what's withheld from an employee's pay, except employees split it with their employer: 6.2% plus 1.45% each. Self-employed, you pay both halves.
- Remember it's on top of income tax. Estimated tax payments cover both your income tax and self-employment tax.
- Keep records all year. Save receipts for expenses, since deducting certain expenses lowers what you owe, and track every payment you receive.
- Report all of it. You must report all income, even if no business sends you a 1099. Payment apps and online marketplaces send a Form 1099-K when your payments for goods or services top $20,000 in more than 200 transactions, but you may get one below that, and the income is taxable either way.
- Pay during the year. If you expect to owe $1,000 or more when you file, you generally need to make estimated payments. Use Form 1040-ES to figure them, and pay online, by mail or by phone.
- At tax time, file Form 1040 with Schedule C (profit or loss) and Schedule SE (self-employment tax). Free options include IRS Free File and Volunteer Income Tax Assistance sites.
Watch out Paying late costs you even if you end up with a refund: you may owe a penalty for not paying enough tax during the year, or for late estimated payments.
Dad note Every time you get paid, move a slice to a tax account like it was never yours.