Just Started Freelancing? Here's What Changed About Your Taxes

You Now Pay an Extra Tax Called "Self-Employment Tax"

This is the biggest surprise for new freelancers. Self-employment tax is 15.3% of your net profit (after business expenses) and covers two things: Social Security (12.4%) and Medicare (2.9%).

At your old W-2 job, your employer paid half of Social Security and Medicare. You paid 6.2% for Social Security and 1.45% for Medicare, and your employer matched those amounts. You might have noticed the "FICA" line on your paystub — that was your half.

As a freelancer, there's no employer to split it with. You pay both halves — the full 15.3%.

Here's what that looks like in real dollars: on $60,000 of net freelance income, self-employment tax is approximately $8,478. On $40,000, it's about $5,652. On $100,000, it's roughly $14,130.

Self-employment tax is calculated on 92.35% of your net earnings (the IRS gives a small adjustment), and you can deduct half of your SE tax from your adjusted gross income, which slightly reduces your income tax. But the bottom line is this: SE tax is often the single largest tax line item for new freelancers, and the one that causes the most sticker shock.

The free calculator on this site shows your exact self-employment tax based on your income and expenses.

You Need to Pay Taxes Four Times a Year

When you were an employee, taxes were paid every paycheck — 24 or 26 times a year. As a freelancer, the IRS still wants taxes paid throughout the year, but on a quarterly schedule.

The four quarterly estimated tax deadlines are: April 15 (covering January through March), June 15 (April through May), September 15 (June through August), and January 15 of the following year (September through December). Notice the quarters aren't equal — Q2 only covers two months.

If you expect to owe more than $1,000 in taxes after any withholding from other sources, the IRS requires quarterly payments. For most freelancers earning more than $7,000-$10,000 per year, you'll cross that threshold.

To pay, go to IRS Direct Pay. Select "Estimated Tax" and Form 1040-ES. It's free, takes about five minutes, and gives you instant confirmation.

What You Can Deduct (This Is the Good News)

Here's where freelancing has a real advantage. You can deduct legitimate business expenses from your income before calculating taxes. These deductions reduce both your income tax and your self-employment tax.

Equipment. Your laptop, monitor, desk, chair, phone, camera, or any other equipment used for your business. If you also use the item personally, deduct the business-use percentage.

Software and subscriptions. Design tools, accounting software, project management apps, professional publications, online courses related to your work, and industry memberships.

Home office. If you have a dedicated space used regularly and exclusively for work, you can claim the home office deduction. The simplified method is $5 per square foot, up to 300 square feet — that's up to $1,500 with no receipts needed.

Health insurance premiums. If you're not covered by a spouse's employer plan, self-employed individuals can deduct health, dental, and long-term care insurance premiums.

Retirement contributions. A SEP-IRA lets you contribute up to 25% of your net self-employment income (up to $70,000 for 2025). These contributions reduce your taxable income and build your retirement savings.

Mileage. Business-related driving is deductible at the IRS standard rate of $0.70 per mile for 2025. Keep a mileage log.

Professional development. Courses, conferences, workshops, books, and certifications related to your field are deductible.

The Set-Aside System That Prevents Tax Surprises

The most effective way to avoid a tax surprise is to never let the money mix in the first place.

Open a separate savings account and label it "Taxes." Every time a client pays you, immediately transfer a percentage to that account. The free calculator tells you your exact set-aside percentage based on your income, expenses, and filing status. For most freelancers, it's somewhere between 25% and 35%.

When a quarterly deadline arrives, the money is already sitting in your tax account. Pay the IRS from that account, and you're done. No scrambling, no surprises.

This system works because it turns a quarterly panic into an automatic habit. The hardest part is the first transfer. After that, it becomes routine.

What If You Switched From W-2 to Freelance Mid-Year?

If you left a W-2 job partway through the year, your tax situation has some nuances that work in your favor.

Enter your actual W-2 income (what you earned at your old job before leaving) and the federal tax that was withheld from those paychecks. Then enter your projected freelance income for the remaining months. The calculator factors in your W-2 withholding, which covers part of your total tax bill — so you only need quarterly payments on the gap.

For example, if you worked a W-2 job from January through April earning $35,000 with $5,500 withheld, and you project $50,000 in freelance income from May through December, enter both sets of numbers. Your W-2 withholding already covers a portion of your tax, so your quarterly payments will be lower than if you'd been freelancing the entire year.