Freelancer vs Employee: Calculating 1099 Self-Employment Taxes

Transitioning from a traditional W-2 job to 1099 contracting is exciting, but it shifts the responsibility of tax calculations entirely onto you. Here is what you need to expect.

1. The Self-Employment FICA Tax (15.3%)

For W-2 employees, FICA (15.3%) is split 50/50: you pay 7.65% and your employer pays 7.65%. For 1099 contractors, you are considered both the employee and the employer. This means you must pay the full 15.3% Self-Employment Contributions Act (SECA) tax on your net business earnings.

2. Estimated Quarterly Tax Payments

Since 1099 contracts do not have an employer automatically withholding taxes from their checks, you must calculate and pay your federal and state income taxes yourself four times a year. These are called Estimated Quarterly Taxes, due in April, June, September, and January.

3. Writing Off Business Expenses

The main advantage of being a 1099 contractor is that you are only taxed on your net business profit, not your gross receipts. You can write off legitimate business expenses (such as home office rent, software tools, computer hardware, and business travel) to directly lower your taxable income base.