If you drive for a rideshare company, do freelance work, run an Etsy shop, do consulting, or earn money doing anything as an independent contractor, you are self-employed. That means no employer is withholding taxes for you. Every dollar you earn is taxable, and you owe both halves of Social Security and Medicare - what is called self-employment tax. This guide explains what you actually owe, what you can deduct, and how to avoid a painful surprise at tax time.
The Numbers You Need to Know
Self-employment tax rate: 15.3% on the first $184,500 of net self-employment income (2026), 2.9% above that
SE tax is in addition to regular income tax. On $50,000 of net self-employment income you pay: SE tax ~$7,065 + income tax at your bracket. Total federal tax could be 25-35% of net income.
SE tax deduction: You deduct half of SE tax paid above the line - this partially offsets the burden.
Quarterly payment threshold: If you expect to owe more than $1,000 in total tax, you should be making quarterly estimated payments. Missing them triggers an underpayment penalty.
What a 1099-NEC Means
Form 1099-NEC (Nonemployee Compensation) is sent to you by anyone who paid you $2,000 or more for services you performed as an independent contractor during the year. The company that paid you also reported this income to the IRS. If you do not report it on your return, the IRS will notice - its computers automatically match 1099s to returns.
The 1099-NEC reports gross payments to you. It does not account for your expenses. You may have driven 20,000 miles for Uber, paid for your own phone, and bought equipment - none of that is reflected on the 1099. Your actual taxable profit is the 1099 amount minus your legitimate business expenses, reported on Schedule C.
Schedule C: Your Business Income and Expenses
Schedule C (Profit or Loss From Business) is attached to your Form 1040. It is where you report all self-employment income (from 1099s and from any cash or non-1099 income) and subtract your business expenses to arrive at net profit. That net profit flows to your Form 1040 as ordinary income AND is subject to self-employment tax on Schedule SE.
You do not need to be incorporated to file Schedule C. Any individual who earns self-employment income - whether you have an LLC, a DBA, or just your name - files Schedule C. The LLC itself does not file a separate federal income tax return if it has only one member (single-member LLC). All the income and expenses flow through to your personal return.
The Self-Employment Tax: Why It Stings
When you work as an employee, your employer pays half of Social Security and Medicare taxes (7.65%) and you pay the other half through payroll withholding. As a self-employed person, you pay both halves - the full 15.3%. This is the self-employment tax, reported on Schedule SE.
The good news: you can deduct half of SE tax paid as an above-the-line deduction on Form 1040 (Schedule 1, line 15). This does not eliminate the SE tax but it reduces your income tax slightly by treating you as if an employer paid half.
Quarterly Estimated Tax Payments
Self-employed people generally must make quarterly estimated tax payments to cover both income tax and SE tax throughout the year. If you wait until April and owe more than $1,000, you owe an underpayment penalty on top of everything else. The four due dates are: April 15, June 16, September 15, and January 15 of the following year.
A simple approach: set aside 25-30% of every payment you receive into a separate savings account earmarked for taxes. Pay quarterly using IRS Direct Pay (free at IRS.gov) or the IRS2Go mobile app. This avoids the underpayment penalty and prevents the April shock.
Business Deductions You Can Actually Take
Every ordinary and necessary expense you incur to run your business is deductible on Schedule C under IRC §162. Some of the most commonly missed deductions for gig workers and freelancers:
Mileage
67 cents per mile (2024 rate; check IRS for 2026). Must keep a mileage log with date, destination, and business purpose. Rideshare drivers: track every mile driven for the platform.
Phone & Internet
The business-use percentage of your phone and internet bill. If you use your phone 60% for business, deduct 60% of the bill.
Home Office
Dedicated space used regularly and exclusively for business. Simplified method: $5/sq ft, up to 300 sq ft. Actual method: percentage of home expenses.
Equipment & Supplies
Computer, camera, tools, supplies used for the business. Fully deductible in the year purchased under §179 or bonus depreciation.
Software & Subscriptions
Business software, project management tools, Adobe Creative Suite, accounting software - all deductible if used for business.
Health Insurance Premiums
Self-employed health insurance premiums are 100% deductible above the line under §162(l) - even better than an itemized deduction.
Retirement Contributions
SEP-IRA contributions (up to 25% of net SE income, max $70,000 for 2026) are fully deductible above the line. One of the best tax moves for self-employed people.
Platform Fees & Commissions
Marketplace fees, payment processing fees, commission paid to the platform - all deductible as business expenses.
The QBI deduction may apply to you. If your net Schedule C income is below the income thresholds, you may qualify for the §199A qualified business income deduction - 20% of your net self-employment income, permanent under OBBBA. On $50,000 of net SE income, that is a $10,000 deduction reducing your taxable income. It is automatic and requires no special action beyond having a qualifying business.
Authority: IRC §1401 (self-employment tax - 12.4% Social Security on net earnings up to $184,500 for 2026, 2.9% Medicare on all net earnings); IRC §1402 (net earnings from self-employment definition - generally net profit from Schedule C); IRC §164(f) (deduction for one-half of SE tax paid - above-the-line deduction); IRC §162 (ordinary and necessary business expenses deductible on Schedule C); IRC §162(l) (self-employed health insurance premium deduction - 100% above-the-line); IRC §199A (QBI deduction - 20% of qualified business income from pass-through including sole proprietorship; permanent under OBBBA); IRC §6654 (underpayment penalty for estimated taxes - applies if you owe more than $1,000 and did not pay through withholding or quarterly estimates); Form 1040 Schedule C (Profit or Loss From Business); Form 1040 Schedule SE (Self-Employment Tax); Form 1040-ES (Estimated Tax for Individuals - quarterly payment vouchers); IRS Publication 334 (Tax Guide for Small Business); IRS Publication 535 (Business Expenses); IRS Standard Mileage Rate Notice (annual IRS announcement of standard mileage rate for business use of vehicle).