Self-Employment Tax for Contractors: What You Owe and When to Pay It

The IRS doesn't wait until April to collect from self-employed tradespeople. You're expected to pay taxes quarterly — and if you don't, you owe penalties on top of what you owe. Most solo contractors find this out the hard way in their first year out on their own.

The Self-Employment Tax Explained

When you work for an employer, Social Security and Medicare (FICA) taxes are split: you pay 7.65% and your employer pays 7.65%. When you're self-employed, you pay both sides — the full 15.3% on your net self-employment income.

The base for calculating SE tax is 92.35% of your net SE income (you get a small adjustment before the calculation). The SE tax itself is 15.3% of that base. Then you pay federal income tax on top of your net income (minus half the SE tax, which is deductible).

Quarterly Payment Deadlines

Estimated tax payments are due four times a year:

• April 15 — for income earned Jan 1 – Mar 31
• June 15 — for income earned Apr 1 – May 31
• September 15 — for income earned Jun 1 – Aug 31
• January 15 (next year) — for income earned Sep 1 – Dec 31

The safe harbor rule: if you pay at least 100% of last year's total tax liability across these four payments, you won't owe underpayment penalties — even if you end up owing more at filing.

How Much to Set Aside

A simple rule for most sole-proprietor contractors in a mid-income range: set aside 25–30% of every invoice you deposit. That covers SE tax, federal income tax, and gives you a small cushion for state taxes. Keep it in a separate savings account and pay quarterly from there.

The actual number depends on your net income and filing status. Someone earning $60,000 net with no other household income has a different liability than someone at $120,000 with a spouse who also works.

Use the Self-Employment Tax Estimator to get your actual quarterly payment estimate. Enter your net SE income, filing status, and other household income — you'll get a breakdown of SE tax, federal income tax, and the quarterly payment amount.