How 1099 income is taxed
When a client sends you a Form 1099-NEC, or a delivery or rideshare app reports your pay on a 1099-K, nobody has taken any tax out of that money. You are running a small business, and you pay two federal taxes on its profit:
- Self-employment tax of 15.3%, which is Social Security (12.4%) and Medicare (2.9%). An employee pays half of this and the employer pays the other half; a self-employed person pays both halves.
- Federal income tax at the ordinary 2026 rates of 10% to 37%, after deductions.
Most states also tax the same profit. Because nothing is withheld, the IRS expects you to pay during the year through quarterly estimated tax payments.
Total tax = self-employment tax + federal income tax (after deductions and credits) + state income tax
Step by step
- Net profit = 1099 income − business expenses. This is the bottom line of Schedule C.
- Self-employment tax = 15.3% of 92.35% of net profit. The 12.4% Social Security part stops at the 2026 wage base of $184,500 (less any W-2 wages you also earned); the 2.9% Medicare part has no cap. See the self-employment tax calculator for every line.
- Adjusted gross income = net profit + wages + other income − half of the self-employment tax − self-employed health insurance and retirement contributions.
- Taxable income = adjusted gross income − the standard deduction ($16,100 single, $32,200 married filing jointly, $24,150 head of household in 2026) or your itemized deductions − the qualified business income (QBI) deduction.
- Income tax from the 2026 brackets, minus credits.
The QBI deduction
Most freelancers and sole proprietors can deduct up to 20% of their qualified business income: net profit less half of the self-employment tax and less self-employed health insurance and retirement contributions. The deduction cannot be more than 20% of taxable income before it. The 2025 tax law made it permanent and, from 2026, sets a minimum deduction of $400 if you have at least $1,000 of qualified business income from a business you actively run.
Above taxable income of $201,750 ($403,500 married filing jointly) the deduction starts to shrink, and for a one-person business with no employees and no business property it is gone at $276,750 ($553,500). The calculator assumes that kind of business. If you pay W-2 wages to employees or own significant equipment, part of the deduction can survive above that range; Form 8995-A works it out.
2026 federal tax brackets
| Rate | Single | Married filing jointly | Head of household |
|---|---|---|---|
| 10% | $0 – $12,400 | $0 – $24,800 | $0 – $17,700 |
| 12% | $12,400 – $50,400 | $24,800 – $100,800 | $17,700 – $67,450 |
| 22% | $50,400 – $105,700 | $100,800 – $211,400 | $67,450 – $105,700 |
| 24% | $105,700 – $201,775 | $211,400 – $403,550 | $105,700 – $201,750 |
| 32% | $201,775 – $256,225 | $403,550 – $512,450 | $201,750 – $256,200 |
| 35% | $256,225 – $640,600 | $512,450 – $768,700 | $256,200 – $640,600 |
| 37% | over $640,600 | over $768,700 | over $640,600 |
The rates apply to taxable income, not to your 1099 total, and each rate applies only to the slice of income inside its band.
Worked example: $72,000 of 1099 income
A single freelance designer bills $72,000 in 2026, spends $12,000 on software, equipment and a home office, and has no other job.
- Net profit: 72,000 − 12,000 = $60,000
- Net earnings for SE tax: 60,000 × 92.35% = $55,410
- Self-employment tax: 55,410 × 15.3% = $8,477.73 (Social Security $6,870.84 + Medicare $1,606.89)
- Adjusted gross income: 60,000 − 4,238.87 (half of SE tax) = $55,761.14
- Before QBI: 55,761.14 − 16,100 = $39,661.14
- QBI deduction: 20% of 55,761.14 would be $11,152.23, but it is capped at 20% of 39,661.14 = $7,932.23
- Taxable income: $31,728.91; income tax: 1,240 + 12% × (31,728.91 − 12,400) = $3,559.47
- Total federal tax: $12,037.20, about 20.1% of the $60,000 profit, or four quarterly payments of about $3,009
Notice that self-employment tax is more than twice the income tax at this level. That surprises many new freelancers, who budget only for the income tax.
Side gig on top of a job
With a $50,000 W-2 job and $30,000 of side-gig profit, a single filer owes $4,238.87 of self-employment tax and about $7,076.98 of income tax on the combined income, $11,315.84 in all. The job's withholding covers part of that. The side income lands in the 22% bracket because it sits on top of the wages, so a rule of thumb of setting aside 25–30% of side-gig profit is closer to reality than 15%.
How much to set aside
| Net profit (single, no other income) | SE tax | Income tax | Total federal | Share of profit |
|---|---|---|---|---|
| $10,000 | $1,412.96 | $0 | $1,412.96 | 14.1% |
| $40,000 | $5,651.82 | $1,775.11 | $7,426.93 | 18.6% |
| $60,000 | $8,477.73 | $3,559.47 | $12,037.20 | 20.1% |
| $100,000 | $14,129.55 | $8,235.00 | $22,364.55 | 22.4% |
| $200,000 | $28,234.30 | $25,196.31 | $53,430.61 | 26.7% |
Add your state's rate on top. Keeping the money in a separate savings account and moving a fixed percentage of every payment into it is the simplest habit that prevents a large April bill.
Common mistakes
- Taxing gross 1099 income instead of profit. Ordinary and necessary business expenses come off first, and they reduce both taxes.
- Forgetting self-employment tax. It applies from the first $400 of net earnings, even when income tax is zero.
- Skipping estimated payments. If you will owe $1,000 or more, the IRS charges an underpayment penalty for quarters you missed, even if you pay everything in April.
- Waiting for a 1099. All self-employment income is taxable whether or not a form arrives. Since 2026 the 1099-NEC threshold is $2,000, so small clients may not send one.
- Mixing personal and business spending. A separate account makes expenses easy to prove if the IRS asks.
This is an estimate of 2026 federal tax for a sole proprietor or single-member LLC. It does not include the alternative minimum tax, net investment income tax, capital gains rates or every credit. Use IRS Form 1040-ES and Schedule SE, or a tax professional, for your actual return.
Frequently asked questions
How much tax do I pay on $60,000 of 1099 income?
If $60,000 is your net profit after expenses and you are single with no other income, 2026 federal tax is about $12,037: $8,477.73 of self-employment tax and $3,559.47 of income tax after the standard and QBI deductions. State tax is extra.
What percentage should I save for 1099 taxes?
For federal tax, about 15% of profit at low incomes, around 20% at $60,000 and 22–27% at $100,000–$200,000. If you also have a W-2 job, plan on 25–30% of side income, plus your state rate.
Do I pay tax on 1099 income under $600 or $2,000?
Yes. The $600 (now $2,000 from 2026) figure is only the point at which a payer must file a Form 1099-NEC. All self-employment income is taxable, and self-employment tax applies once net earnings reach $400.
Is the 1099 tax rate 15.3%?
15.3% is the self-employment tax rate, applied to 92.35% of profit. Federal income tax at 10–37% comes on top of it, after deductions.
Does a 1099 worker get the standard deduction?
Yes. Self-employed people take the same standard deduction as anyone else, plus the deduction for half of self-employment tax and, for most, the 20% qualified business income deduction.
Sources
- Internal Revenue Service. Revenue Procedure 2025-32: 2026 tax brackets, standard deductions and QBI threshold amounts (section 4.26).
- Internal Revenue Service. Schedule SE (Form 1040), Self-Employment Tax; Topic 554, Self-Employment Tax.
- Internal Revenue Service. Form 1040-ES (2026), Estimated Tax for Individuals: changes to the QBI deduction and the 2026 due dates.
- Internal Revenue Service. Qualified business income deduction; Publication 334, Tax Guide for Small Business.
- Social Security Administration. Contribution and benefit base: $184,500 for 2026.
Last reviewed 29 October 2026. Results are estimates; see our disclaimer.