How Much Tax to Pay as Independent Contractor

As an independent contractor, it`s important to know how much tax you`re responsible for paying. Unlike employees who typically have their taxes withheld by their employer, independent contractors are responsible for calculating and paying their own taxes. Here`s what you need to know about how much tax to pay as an independent contractor.

Self-Employment Tax

One of the first things to consider as an independent contractor is self-employment tax. This tax is essentially the equivalent of the Social Security and Medicare taxes that employees pay. As an independent contractor, you`re responsible for paying both the employer and employee portion of these taxes. The current self-employment tax rate is 15.3%, which is split between 12.4% for Social Security and 2.9% for Medicare.

Income Tax

In addition to self-employment tax, you`ll also need to pay income tax on your earnings. The amount of income tax you owe will depend on a variety of factors including your income level, filing status, and deductions. As a general rule, the more you earn, the higher your income tax rate will be. Independent contractors are required to make estimated tax payments throughout the year based on their projected income. Failure to do so can result in penalties and interest.

Deductible Expenses

One advantage of being an independent contractor is the ability to deduct certain business expenses from your taxable income. Deductible expenses can include things like home office expenses, equipment and supplies, professional development courses, and travel expenses. By deducting these expenses, you can lower your taxable income and potentially reduce the amount of tax you owe.

Tax Planning

As an independent contractor, it`s important to plan ahead for taxes. Keep accurate records of your income and expenses throughout the year to make tax time easier. Consider working with a tax professional to help you navigate the complexities of self-employment tax and income tax. Finally, make sure to set aside a portion of your earnings throughout the year to cover your tax obligations.

In conclusion, being an independent contractor comes with tax responsibilities that employees don`t have to worry about. You`ll need to pay self-employment tax, income tax, and keep track of deductible expenses. However, with careful planning and record-keeping, you can ensure that you`re paying the right amount of tax and maximizing your deductions.