If you work for yourself: taxes and basic paperwork

W-2 or 1099: the difference

When you're an employee, your employer withholds tax from each paycheck and gives you a W-2 at the end of the year. If you work for yourself, you get paid the full amount and you're responsible for figuring and paying your taxes. PlainRefund's calculator is built for W-2 income; if most of what you earn is self-employment income, its result won't help you much.

Self-employment tax

On top of income tax, you pay Social Security and Medicare yourself. According to the IRS, the rate is 15.3%: 12.4% for Social Security and 2.9% for Medicare. You have to figure and report it if your net earnings from self-employment were $400 or more for the year.

Part of that tax, the employer-equivalent portion, can be deducted when you figure your adjusted gross income.

Quarterly estimated payments

Since nobody withholds tax for you, you may need to make estimated payments during the year, usually four: in April, June, September and January. Form 1040-ES includes a worksheet to figure how much to pay, and you can pay online from IRS.gov. If you don't pay enough on time, the IRS may charge a penalty.

Keep records

• Keep the 1099 forms you receive, and also write down payments that don't come with one: they all count as income.
• Keep receipts for your work expenses; some can be deducted.
• If you can, keep a separate account just for your work money.

Get your agreements in writing

A simple contract with each client makes clear how much you're paid, when and for what work. It also helps you prove your income if you ever need to, for example to rent an apartment or get a loan.