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This article was fact-checked by our editors and a member of the Credit Karma Tax® product specialist team, led by Senior Manager of Operations Christina Taylor. It has been updated for the 2020 tax year.
Working for yourself may be your dream, but if you’re not familiar with self-employment tax forms, tax time could feel like a nightmare.
Filing federal taxes as a self-employed worker can require a bit more paperwork than filing as a wage-earning employee. Self-employment tax forms matter, and not just at tax time. There are forms you may need to stay on top of throughout the year.
Let’s look at some of the self-employment tax forms you may need for federal income tax purposes. Note that in some cases, we’ll be looking at draft versions of forms that the IRS proposes to implement for the 2020 tax year. These drafts could change before the IRS finalizes them for the 2021 tax season (which is when you’ll file your 2020 federal income tax return).
- Who’s self-employed?
- What self-employment tax forms might I need to file?
- What forms might I need to file throughout the year?
You might think of self-employment as being a business owner in a brick-and-mortar setting. But these days, there are many ways to be self-employed, including as a freelancer, gig worker or independent contractor.
You need to understand whether the IRS considers you an employee or a self-employed individual, because your employment status significantly affects your taxes. For example, if you’re self-employed you’ll likely have to pay self-employment tax in addition to income tax. But you might also be able to take some business tax deductions that a wage-earning employee can’t take.
Check out the IRS’ Self-Employed Individuals Tax Center to learn more about the type of worker that the IRS considers self-employed for federal tax purposes.
A number of IRS self-employment tax forms may be relevant to your tax situation. Here are some of them. Fortunately, you’re likely already familiar with one of them.
If you’ve ever filed a tax return, you likely used Form 1040. This is the form that individuals use to file their annual federal income tax return.
Form 1040 is a relatively simple form. In two pages, it summarizes your taxable income, certain deductions and credits, and the amount of tax you owe or the refund owed to you. But many taxpayers must attach several forms and schedules to their Form 1040.
For example, if you itemize deductions, you’ll likely need to use Schedule A. If you itemize when you prepare your tax return, you’ll add up all of your eligible deductions. These could include deductible medical expenses, taxes, mortgage interest and charitable contributions. If your total is higher than the available standard deduction for your filing status, you’ll likely save by itemizing. Otherwise, you should probably claim the standard deduction.
What are the 2020 standard deduction amounts?
For the 2020 tax year, the standard deduction amounts are …
• $25,100 for taxpayers who are married filing jointly
• $12,550 for single taxpayers and married couples filing separately
• $18,800 for people filing as head of household
Schedule C is the form used by sole proprietorships, freelancers and independent contractors to report profit or loss from their business. This form organizes your income and business expenses into several line items and helps calculate your net profit or loss from self-employment.
If your business has inventory, this form is also used to calculate your cost of goods sold. Schedule C also includes a section to report the number of miles driven for work if you use a vehicle in your business.
Schedule SE is used to calculate self-employment tax — essentially the version of an employee’s Social Security and Medicare taxes for the self-employed.
The self-employment tax rate is 15.3% of your net earnings from self-employment. That rate includes 12.4% for Social Security and 2.9% for Medicare. If that number seems high, don’t worry — there are a couple of tax breaks that may bring that percentage down.
First, there’s a cap on the amount of earnings subject to the Social Security portion of self-employment tax. This cap is known as the Social Security wage base. For 2020, the Social Security wage base is $137,700.
Also, you get to deduct half your calculated self-employment tax as an adjustment to income, also known as an above-the-line deduction, on Line 14 of Schedule 1.
Self-employment tax isn’t the only deduction applicable to self-employed taxpayers on Schedule 1. The form also includes lines for deductions for qualifying self-employed retirement plan contributions and the amount you paid for qualifying health insurance.
Self-employed taxpayers have several options when it comes to saving for retirement, including a Simplified Employee Pension, or SEP-IRA; a solo-401(k); a Savings Incentive Match Plan for Employees, or SIMPLE IRA Plan; a Traditional IRA and a Roth IRA. Rules and limitations vary depending on the type of plan you choose, so do your research before making any contributions. But if you do, you may be able to report deductible contributions on Line 15 of Schedule 1.
If you paid for medical, dental and long-term care insurance for yourself, your spouse, qualifying child or dependents, you may be able to deduct the premiums paid on Line 16 of Schedule 1. For these premiums to be deductible, you must have established the insurance through your business and not through an employer-sponsored health insurance plan (either yours or your spouse’s).
You also can’t deduct any premiums you paid during those months when you were eligible to be covered by a plan sponsored by an employer of you, your spouse, your qualifying child or dependents.
If you’re self-employed and work from a home office, you’ll want to get familiar with Form 8829, the form used for claiming the home office deduction.
The home office deduction allows qualifying taxpayers to deduct certain expenses relating to the business use of their home, including mortgage interest or rent, homeowners insurance, utilities, repairs, maintenance and more.
There are some limitations on claiming the home office deduction, as well as a couple of different ways to calculate your deduction. If you qualify, you may need to attach Form 8829 to your return and carry your deduction to Schedule C.
Tax forms may be top of mind when Tax Day approaches, but there’s another self-employment-related tax form you’ll probably need to deal with a lot more often if you want to avoid IRS penalties: Form 1040-ES.
Form 1040-ES is used to calculate and pay quarterly estimated taxes. Estimated taxes are crucial for self-employed taxpayers. If you’re used to working as an employee, you likely noticed that your employer withheld income and payroll taxes from your paycheck. As a self-employed person, you don’t have an employer withholding those taxes, so you need to estimate and pay them on your own. If you don’t pay enough of your total tax obligation by Tax Day, you could face a penalty for underpaying your taxes.
Credit Karma’s article on paying self-employment tax for the first time can help you get an idea of how to calculate and make estimated tax payments. Estimated payments are typically due April 15, June 15 and Sept. 15, and by Jan. 15 of the following year — but if the due date falls on a Saturday, Sunday or legal holiday, the payment is due the next business day.
Keep in mind that you may also owe state income taxes depending on where you live, and each state has its own forms for reporting and paying tax on self-employment income.
If you use tax preparation software or an online tax preparation and filing service like Credit Karma Tax®, the product can help you with calculations based on the information you enter. Still, it pays to know what forms the IRS requires you to file when you have self-employment income. Submitting an accurate and complete federal income tax return helps the IRS process your return and get you your refund if you’re owed one.
Christina Taylor is senior manager of tax operations for Credit Karma Tax®. She has more than a dozen years of experience in tax, accounting and business operations. Christina founded her own accounting consultancy and managed it for more than six years. She codeveloped an online DIY tax-preparation product, serving as chief operating officer for seven years. She is an Enrolled Agent and the current treasurer of the National Association of Computerized Tax Processors and holds a bachelor’s degree in business administration/accounting from Baker College and an MBA from Meredith College. You can find her on LinkedIn.