Self-employment shifts the burden of tax collection from the employer to the earner. There is no withholding; there are quarterly estimated payments. Self-employment tax replaces the employer's share of payroll taxes. And every business expense is potentially deductible, which is the reward for keeping records.
- 01Distinguish 1099-NEC income from W-2 income.
- 02Compute self-employment tax and quarterly estimated payments.
- 03List the deductible expense categories every self-employed household should track.
1099 mechanics
You receive gross income. You owe income tax and 15.3% self-employment tax (12.4% Social Security up to the wage base, 2.9% Medicare with no cap, plus an additional 0.9% Medicare surtax at high incomes). Quarterly estimated payments are due April 15, June 15, September 15, and January 15.
The deductions
Home office, mileage, health insurance, self-employed retirement contributions (SEP, Solo 401(k)), business meals at 50%, professional development, and the qualified business income deduction under §199A. Track the categories from day one; reconstruction after the year is closed is painful.
The workflow
Separate business bank account. Bookkeeping software or a disciplined spreadsheet. Quarterly reconciliation. Annual tax preparation by someone who has seen the schedule before you. The overhead is real; the tax savings usually pay for it.
- Self-employment tax is 15.3% on the first tranche of net earnings.
- Estimated payments quarterly; underpayment penalty is real.
- Every deduction rests on a record. Keep the records.