Freelancers and independent contractors are responsible for paying both income tax and self-employment tax. The self-employment tax of 15.3% covers both the employee and employer portions of Social Security (12.4%) and Medicare (2.9%). This is calculated on 92.35% of your net self-employment income, and you can deduct half of it from your adjusted gross income.

Because no employer withholds taxes from your payments, the IRS requires freelancers to make quarterly estimated tax payments. These are due on April 15, June 15, September 15, and January 15. Failing to make timely estimated payments can result in underpayment penalties, even if you pay everything owed when filing your return.

Maximizing deductions is critical for reducing freelancer tax liability. Common deductions include a home office deduction, internet and phone bills, professional development, software subscriptions, business travel, and health insurance premiums. Additionally, contributing to a SEP IRA or Solo 401(k) allows you to defer a significant amount of income while building retirement savings.