Self-employment taxes and Form 1099-NEC

Who is self-employed?

You are self-employed if you run your own business or work as an independent contractor: you are paid for the work you finish and nobody withholds taxes from your pay. It is common in construction, cleaning, landscaping, beauty, child care, driving and delivery.

A business that pays you as a contractor usually sends you a Form 1099-NEC. But you must report everything you earned whether or not you receive a form, including cash payments.

When you must file: the $400 rule

If your net earnings from self-employment were $400 or more for the year, you must file a federal return, even if your total income is low. For this rule, net earnings are your business profit (what is left after you subtract your expenses) multiplied by 92.35%.

Self-employment tax

An employee pays half of Social Security and Medicare, and the employer pays the other half. When you are self-employed, you pay both halves through self-employment tax, which is figured on Schedule SE.

• It is figured on 92.35% of your net profit.
• The rate is 15.3%: 12.4% for Social Security and 2.9% for Medicare.
• For 2025, the Social Security part applies only up to $176,100 of combined wages and self-employment earnings. The Medicare part has no such limit.
• Half of this tax is subtracted from your income as an adjustment, which lowers your income tax.

Business expenses you can deduct (Schedule C)

Your business income and expenses are reported on Schedule C. You can deduct the ordinary and necessary costs of your work, which lowers both your income tax and your self-employment tax.

• Tools, supplies and work equipment.
• Business use of your vehicle (not the commute from home to your regular workplace).
• The part of your phone and internet you use for the business.
• Advertising, business insurance, licenses and the fees of platforms or apps that take a commission.
• Payments to people who helped you with the work.

Estimated payments and records

Because nobody withholds tax for you, the IRS expects you to pay during the year through quarterly estimated payments (Form 1040-ES). If you do not pay enough during the year, you may owe a penalty on top of the tax.

Keep your 1099 forms, your bank statements and the receipts for your expenses, and log the miles you drive for the business. Good records let you deduct everything you are entitled to and back it up if the IRS asks.

With Vordana Tax you answer simple questions about your business, your Forms 1099-NEC and your expenses, and the software prepares Schedule C and Schedule SE for you.

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