I’m self employed. How much will I pay in taxes?
Independent contractors have been increasingly taking the place of permanent employees in many companies across the United States. While working independently may afford you certain freedoms not typically associated with a permanent job, it also poses additional challenges that you would have skipped by receiving a W-2. If you’re approaching the end of the year worried about how much you’ll be on the hook for in 2018, we’re here to help break it down for you.
How much should I set aside?
As a self-employed person, you don’t have an employer who’s withholding your taxes for you. This means that when tax season rolls around, in addition to paying state and federal income tax, you will also have to pay self-employment tax. Self-employment tax covers your contribution to Social Security and Medicare taxes. Generally, self-employment tax works out to be about 15 percent of your income. When you add this to the income taxes you’ll owe, you should be prepared to pay about 30 percent of your annual earnings in taxes.
Breaking up your payments
Regardless of your income, parting with 30 percent of it in one lump sum can be a difficult pill to swallow. However, as a self-employer person, you have the option of filing your taxes quarterly (and in some cases, you’re required to do so—e.g., if you have employees to whom you pay wages). Distributing your tax payments out over the year can be an effective way of managing your money and avoiding any unpleasant surprises come tax season.