There are more than 11 million independent contractors in the United States. As noted by the U.S. Bureau of Labor Statistics,1 this accounts for 7.4% of total employment nationwide, a number that has been steadily growing as the “gig economy” gains ground.
While the services provided may vary significantly — for example, both a ride-share driver and a lawyer may be considered independent contractors depending on the terms of their agreements — all independent contractors face a similar challenge: taxes.
As a freelance writer, I’m familiar with the struggles of filing and managing tax returns. In my first year operating my business, I narrowly avoided paying a hefty fine for failing to make quarterly payments — an obligation I’d never heard of, let alone understood.
Not sure how to file your taxes as an independent contractor? We’ve got you covered.
Understanding Your Tax Obligations as an Independent Contractor
Employers typically withhold taxes for employees from every paycheck. Employees must file a tax return using IRS Form 1040, but the money required for income tax, Social Security, and Medicare has been automatically deducted from their salary or hourly wage.
For independent contractors, meanwhile, things get a little more complicated. While you still need to file Form 1040, you’re responsible for calculating the amount of income tax you owe. You’re also required to pay self-employment tax using Schedule SE of Form 1040. This tax is currently 15.3%, with 12.4% going to Social Security and 2.9% to Medicare.
Unlike employees, you’re also responsible for paying income tax in quarterly installments rather than in a lump sum at the end of the tax year. This means you’re paying taxes on the money you expect to earn — typically using income from previous quarters or years to estimate your likely tax payment. I’ve learned to treat these quarterly payments like bills, setting aside money each month so I’m not scrambling when it’s time to pay.
Tax tip: Independent contractors are considered self-employed for tax purposes.
Keeping Track of Income and Expenses
Accurate records are essential for independent contractors to ensure they’re paying what they owe — and submitting payments on time. These records also play a role in calculating any deductions or credits and providing evidence of expenses as requested by the IRS.
As a result, it’s critical to create a filing system that is simple, reliable, and accurate. For some contractors, this takes the form of physical invoices and receipts stored in well-organized file folders or a filing cabinet. However, since many businesses now ask contractors to submit invoices online and pay using digital services, a paper-based approach can increase the risk of data loss, potentially impacting your tax return. I had a wake-up call a few years ago when I was reviewing my records for tax time, only to realize that a folder full of receipts had somehow gone missing. After hours of searching and stress, I switched to scanning everything and storing it digitally.
To reduce the risk of missing tax information, you can use purpose-built tracking software. The most popular applications for independent contractors include FreshBooks, QuickBooks, Expensify, and Certify. FreshBooks and QuickBooks tend to be more cost-effective, while Expensify and Certify offer more in-depth features for premium prices.
Deductions and Credits for Independent Contractors
Independent contractors may qualify for deductions and credits. Here are some of the most common:
Deductions
Home office deduction
If you use your home office for work — for example, if you provide remote IT services or create digital content for brands or retailers — you may be able to deduct the expenses associated with your office from your income tax. These expenses include rent, mortgage interest, utilities, and repairs.
If eligible, these deductions are calculated as a percentage. For example, if your home office accounts for 10% of the space in your home, you can claim 10% of your rent or mortgage interest as expenses.
Health insurance premium deduction
If you’re paying for health insurance, you can deduct all of your health and dental premiums from your income tax to help save money.
Internet and phone bill deduction
Like the home office deduction, you can claim internet and phone costs as a business expense. The caveat? Unless you have a dedicated business phone line or internet connection, you can’t deduct the full amount. Instead, make an estimate based on your business and personal usage.
Vehicle use deduction
If you use your vehicle for your work — for example, you drive for a ride-share company or deliver packages — you can claim $0.70 per mile.2 This means that 1,000 miles a year in work-related trips equals a $700 deduction on your income tax.
Credits
Self-employment tax credit
This credit lets you leverage the employer-equivalent portion of your self-employment tax (typically half of what you pay each year) to reduce your gross income, which can help lower the amount of income tax you pay.
Earned Income Tax Credit (EITC)
The EITC is designed to help low to moderate-income workers reduce the tax they owe. Eligibility is determined on a case-by-case basis — use the IRS EITC Assistant3 to find out if you qualify.
Filing Your Taxes as an Independent Contractor
To streamline your tax preparation and filing as an independent contractor, follow these four steps:
1) Make sure you have the correct forms.
As an independent contractor, you’ll file Form 1040 for your individual tax return. You also need to file Schedule SE of Form 1040 for your self-employment taxes and Schedule C of Form 1040 to calculate your net loss or profit.
You should also receive Form 1099-NEC (Nonemployee Compensation). This form is provided by any business you have worked with that paid you more than $600 during the tax year.
2) Double-check your income and find deductions.
Before filing, double-check your income records against any Form 1099s you receive. If you notice a discrepancy, stop and contact the business to correct it.
Then, look for deductions you can claim such as your home office, vehicle, or Internet service, along with your self-employed tax payments.
3) Choose the best filing method for your business.
There are three common ways to file your taxes.
- The first is physical mail. If you choose this method, make sure to send all documents using registered mail so you can track their progress and confirm delivery.
- Next is filing online with IRS Direct File.4 This service lets you prepare and file your taxes for free directly with the IRS.
- Finally, you can hire a tax professional to complete and file returns on your behalf.
Tax tip: Always use tax professionals with preparer tax identification numbers (PTINs).
4) Set up a payment schedule.
As noted above, independent contractors are required to make quarterly estimated tax payments. These payments are due April 15, June 15, September 15, and January 15 of the following year. Failure to make payments on time may result in a penalty.
To avoid this risk, it’s worth setting up a payment schedule with your financial institution to ensure you pay taxes monthly or quarterly — whichever is best for your cash flow.
Additional Resources to Help Navigate Your Return
Not sure where to get started with your return, or have questions about the forms you need to fill out? Start with the IRS self-employed individuals tax center.5
It’s also worth considering software and skills that can help streamline your tax return. On the software side, products like FreshBooks or QuickBooks offer self-employed solutions that help you track income, pinpoint deductions, and claim expenses. When it comes to skills, it’s often beneficial to work with a professional accountant or a tax preparation firm.
Accountants are especially helpful since many operate as independent contractors, giving them first-hand knowledge of key tax steps and potential pitfalls.
Knowledge is Key
While filing taxes as an independent contractor is similar to filing an individual tax return, additional forms are required, and quarterly payments are mandatory.
The more you know, however, the easier the process becomes. Use our tax guide to get started, and if you need more help, the IRS has a host of resources for self-employed workers and independent contractors. Additionally, consider consulting with a tax professional who can provide personalized advice tailored to your specific situation. With the right knowledge and preparation, you’ll feel more confident in managing your taxes and can focus on growing your business without the worry of tax season looming over you.
The information in this document is accurate as of the date of publishing.
References:
- https://www.bls.gov/news.release/conemp.htm#:~:text=In%20July%202023%2C%20there%20were,firms%20(0.5%20percent%20of%20total ↩︎
- https://www.irs.gov/newsroom/irs-increases-the-standard-mileage-rate-for-business-use-in-2025-key-rate-increases-3-cents-to-70-cents-per-mile#:~:text=Beginning%20Jan.%201%2C%202025%2C,the%20same%20as%20in%202024. ↩︎
- https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit/use-the-eitc-assistant ↩︎
- https://directfile.irs.gov/ ↩︎
- https://www.irs.gov/businesses/small-businesses-self-employed/self-employed-individuals-tax-center ↩︎