How Independent Contractors File & Pay Taxes in the US (2025 Guide)

Working independently gives you freedom—setting your own hours, choosing your clients, and running your business your way. But when tax season rolls around, things can get complicated fast. Missing a deadline or miscalculating what you owe could cost you.

You’re probably here because you’re trying to figure out how independent contractors in the US file and pay taxes. What forms do you need? How much should you set aside? And which expenses can help reduce your tax bill?

At Deel, we support thousands of contractors around the world like you. Whether you’re a small business owner, a podcast host, or a freelance designer, our platform helps you manage income, track expenses, and stay on top of your local tax obligations.

This guide walks you through what to file, what to track, and how Deel can help simplify the entire process.

Disclaimer: This article is informational and should not be considered tax advice.

What is an independent contractor?

Independent contractors are self-employed individuals, small business owners, or sole proprietors who provide services to client companies as non-employees, usually on a short-term or per-project basis.

Contractors are in charge of their working hours, equipment, where they work, and how they do their job. The client cannot direct the contractor’s work beyond the project’s outcome and deadline.

Check out our article How to Be an Independent Contractor to learn how to get up and running as a contractor.

What US taxes must you pay as an independent contractor?

Understanding your tax liability as a contractor can be daunting, especially if you’ve only worked as an employee. Independent contractors are responsible for their own taxes. Their client companies don’t offer tax withholding or employer contributions like they would for employees.

As an independent contractor, you’ll need to pay two types of tax: income tax and self-employment tax (SE tax). The following sections explain both of these types of tax in more detail.

When do you need to pay US taxes as a contractor?

If your net earnings from self-employment are $400 or more, you’ll need to file a tax return with the IRS (Internal Revenue Service). If your net earnings are under $400, you still need to file an income tax return if you have other earnings, such as employment income.

If you expect to owe more than $1,000 in taxes for the tax year, the IRS requests that you file estimated tax payments four times a year to avoid a large tax bill at the end of the year.

There are four quarterly tax payments for your estimated tax. The deadlines for them are:

• April 15
• June 15
• September 15
• January 15

You’ll need to pay your quarterly estimated taxes on time and avoid underestimating them, since both actions can result in a tax penalty or an IRS audit. If you overpay the quarterly taxes, you will get a tax refund from the IRS.

Paying your self-employment tax

Self-employment tax is the equivalent of the FICA tax that employers pay for their employees, but it’s for contractors and self-employed individuals. SE tax includes Social Security and Medicare taxes.

The total SE tax rate is 15.3% of your net earnings as a contractor:

• 12.4% goes towards Social Security
• 2.9% goes toward Medicare

The 15.3% is split into two parts:

• 7.65% is the portion that would typically be paid by the employee
• 7.65% is the portion that would typically be paid by the employer

As a self-employed person, you’re responsible for paying both parts (the full 15.3%).

However, the IRS recognizes this burden, so they let you deduct the 7.65% “employer portion” when you file your taxes, reducing your taxable income.

Paying your income tax

The second tax on your list is the federal income tax. The tax system is progressive in the US, which means you pay more when you earn more.

There are seven federal tax brackets:

• 10%
• 12%
• 22%
• 24%
• 32%
• 35%
• 37%

Your bracket depends on your taxable income and filing status. You can use form 1040-ES to calculate and pay quarterly estimated tax payments for the current year.

Federal vs. state and municipal taxes

The two types of taxes we covered above are federal taxes. Depending on your state, additional state or municipality taxes may apply. Several states, such as Texas, Florida, Washington, and Nevada, don’t charge personal income tax.

State and local regulations vary considerably, so you should check out the tax authority in your state for detailed information.

Deel provides a Tax Advice Marketplace where you can connect with local tax professionals who understand your region’s rules. They can help you navigate state and municipal tax requirements, so you stay compliant at every level.

Claim deductions to reduce your income tax

You can reduce your income tax by claiming deductions from your business income. These deductions often considerably lower the amount of your taxable income. Therefore, knowing everything you can claim on your tax return will help you reduce your tax bill as much as possible.

Deductions are reported on Schedule C of your form 1040. We cover the following tax deductions in-depth in our tax deductions guide, but here’s a quick overview of some typical expenses you can claim:

Home office expenses

Many contractors work from home. Since part of your home serves as a place of business, you can write off a portion of your rent, mortgage, or property taxes. There are two requirements you need to meet to qualify for this deduction.

• The home office must be a dedicated place you use exclusively for work.
• The home office must be the primary place for doing business.

You can calculate your home office deduction by determining the percentage of your total home area that the home office occupies.

There is a simplified deduction for home offices under 300 square feet. For these, instead of detailing the expenses, the IRS lets you claim $5 per square foot, with a maximum allowance of $1,500 per year.

Health insurance

If you pay a health insurance premium out of pocket as a contractor, that payment is tax-deductible. This deduction includes healthcare and dental insurance for your spouse, dependents, and children under 27. This deductible can also cover your long-term care insurance premiums.

Deel offers access to premium global healthcare plans tailored for independent contractors. You can purchase a plan that fits your needs and location directly from the Deel platform and even enjoy exclusive discounts.

Car expenses

The purchase of a car itself is not part of the deduction. However, its mileage, tolls, parking, and other vehicle-related business expenses are. The IRS’s mileage deductible rate is $0.70 per mile.

Advertising and promotion

It may come as a surprise, but the activities you undertake as a contractor to promote and advertise your business are 100% deductible. Qualifying expenses include media ads (print and online), promotional materials such as business cards or leaflets, hiring a designer to make your new website, or posting ads on social media.

Bank fees

As a contractor, you should keep separate bank accounts and credit cards for your business. This makes it easier to separate business and personal transactions, plus all bank fees, credit card company charges, overdraft fees, and similar expenditures are deductible. You can also deduct transaction fees paid to third parties, such as PayPal.

It’s easy to overlook minor deductible charges and fees. But they add up over time, making a significant difference at tax time. Deel’s bookkeeping tools include an expense tracker that helps you log and categorize bank fees and credit card charges, ensuring nothing slips through the cracks.

Equipment depreciation

Depreciation is a term that often comes up, but it can sometimes confuse business owners. Depreciation means that when you buy the equipment you use for business, you can’t deduct its price all at once.

Instead, you spread the cost of your business equipment over the years of use. However, there are tax rules that help you speed things up in the first year of service—section 179 and the Special Depreciation Allowance (bonus depreciation).

Section 179 lets you deduct up to $1,250,000 in qualifying purchases, but the deduction starts to shrink if you spend more than $3,130,000 in total. The Special Depreciation Allowance is set at 40%, meaning you can write off 40% of the cost of eligible property in the first year and depreciate the rest over time.

Getting these deductions right can be complicated. Leverage Deel’s tax professionals to take full advantage of these allowances and record depreciation for your high-value equipment properly.

Cell phone and internet expenses

If your business operates in such a way that the internet and a cell phone are crucial, you can deduct these costs. However, make sure to have a separate phone number for the business. In this case, you can deduct the entire cost of the phone plan.

Education expenses

If you are self-employed, chances are you know how important education and professional training are in the modern-day economy. Investing in your skills and credentials is always a good business move; luckily, you can deduct education costs from your tax bill. You can deduct anything from webinars and books to professional publication subscriptions.

Travel expenses

Business travel expenses are tax-deductible as long as the trip is made for business purposes only and outside your tax home, meaning your area of conducting business. Keep the receipts for transportation, meals and lodging, dry cleaning, and similar expenses.

Keeping clear records throughout the year makes it easier to claim deductions accurately. With Deel’s built-in bookkeeping, you can track expenses as you go and avoid missing deductible costs later.

How to file independent contractor tax forms

Contractors must fill out the following US tax forms throughout the tax year. You can file your taxes either by mail or online. We recommend you opt for the online method. It’s faster, you don’t need to order the forms online, and you don’t have to pay by check.

For online filing, you must open an account on the IRS website and transfer the money directly from your bank account or credit card. Filing online also saves all your information on the account, including payment history. That way, you don’t have to worry about losing papers.

Form W-9: Share your Social Security or tax identification number with your client

If the client intends to pay you $600 or more in a year, they must provide you with form W-9 to fill out and return before business commences.

You must complete the W-9 form by entering your name, address, and Social Security number or tax identification number, and return it to the client. The client will retain this form for four years, should any questions arise from the IRS.

The form W-9 acts as an agreement that you are responsible for withholding taxes from your gross income. The client also uses the information on the W-9 to complete a 1099-NEC form at the end of the tax year.

Form W-8BEN (or W-8BEN-E): For non-US citizens/residents

Contractors who aren’t US citizens or residents but have worked in the US or earned income in the US must complete form W-8BEN (for individuals) and form W-8BEN-E (for entities) before getting their first payment.

A W-8BEN form is a tax document used to certify that your country of residence is outside the United States for tax purposes.

If you’re a resident of a foreign country with which the United States has an income tax treaty, submitting a Form W-8BEN may reduce your tax or exempt you from paying US tax altogether.

You must download and complete Form W8-BEN by filling in your:

• Full name
• Street address
• Country of residence
• Tax number
• Date of birth
• Article number (US tax treaty information)
• Withholding rate

Finally, you should sign and date the form and return it to the client, where it will remain on file and valid for the remainder of the year and three full calendar years after that.

Form 1099-NEC: Report your wages to the IRS

Form 1099-NEC is an information return used by clients to report a contractor’s income to the IRS.

If you receive $600 or more from your client in a tax year, you can expect to receive a 1099-NEC form from your client.

You must complete the form by providing the following information:

• The clients’ information (name and address)
• Your information (Name, address, and taxpayer ID)
• The total amount of compensation paid during the year
• Any federal income tax withheld
• Any state tax withheld
• The total state income paid to you for the year

You must return this form to the client so they can file it with the IRS by January 31 each year.

If you do not receive the 1099-NEC form by the end of January, request it from the client directly.

Form 1040: File a return for your self-employment income

The IRS form 1040 is one of the official documents that US taxpayers use to calculate and file their taxable income by the April tax deadline.

Before you file a return for your self-employment income, you must first determine if you made a profit of over $400. Contractors only need to file a return for self-employment income if their net earnings (revenue minus expenses) from the business exceed $400.

If your net earnings are under $400, you still need to file an income tax return if you have other earnings, such as employment income.

You can calculate your business’s net income or loss on the Schedule C of your form 1040.

Regarding self-employment tax, you’ll use Schedule SE on form 1040 to calculate how much you owe based on your self-employment income.

Do you need to pay US taxes as an international independent contractor?

Even if you’re an international contractor, your income may still be taxable in the US. There are three possible scenarios:

You work in the US, but your country has a tax treaty with the US

If you have a working US visa and perform work in the US as a non-US citizen, you may be exempt from US taxes or need to pay tax at a reduced rate.

You must fill in form 8233 if your country of residence has a tax treaty with the US to claim exemption from withholding compensation for personal services. If you’re unsure whether your country has a treaty with the US, you can check the list on the official IRS website.

You work in the US, and there’s no tax treaty between your country and the US

If there isn’t a tax treaty between the US and your country, you must withhold 30% of your US-sourced income to pay income tax for non-residents using form 1099-NEC, which you should receive from your client.

The deadline to mail or e-file 1099-NEC to the IRS for the tax year is January 31 of the following year.

Do you need help determining whether your income is US-sourced? The IRS says you can determine the source of income by the location where you perform the services.

Your income is considered US-sourced if you perform the work while physically present in the US, regardless of where your client is based. However, if you only worked in the US for a short period during the year, you can avoid US tax obligations if all these conditions are true:

• You haven’t spent more than 90 days in a tax year in the US
• You have made $3,000 or less
• You have performed services for an office or entity maintained in a foreign country

You live and perform all your work in your country of residence

If you work outside the US, even for a US-based company, your income is not considered US-sourced.

Foreign contractors outside the US earning income from US-based clients must complete form W-8BEN. If you’re acting as a business entity, you’ll receive form W-8BEN-E from your client.

In this scenario, your income isn’t taxable in the US, and you’re responsible for paying your taxes in your country of tax residence.

The hiring company must retain a copy of your W-8BEN form to prove that you aren’t a US citizen and protect them in case of an IRS audit.

The form is valid for three years, and you must submit a new one if any of the information changes or your collaboration with the client continues for more than three years.

See more: The Ethics of Digital Nomadism: Making a Positive Impact (+ checklist)

Tips for filing taxes as an independent contractor

Now that you’re familiar with contractor taxes, there are some tips and tricks to keep in mind to make tax time less burdensome for you and your business.

Hire a tax professional

If you don’t want to do taxes by yourself after learning about all of the forms and deadlines we went over, use Deel’s tax advice feature.

Our Tax Advice Marketplace has certified individuals and entities vetted by Deel. You can find a tax professional specialized in your branch of business. Their expertise may help you save thousands of dollars in deductions and countless hours browsing the IRS tax guide. Remember that tax professionals’ fees are tax-deductible.

Keep your tax records

One crucial trick for making the tax season less stressful is organizing and tracking your business transactions. Tax filing is much easier when your documents and records are under control.

We recommend signing up for Deel and using our free Bookkeeping features. Our tools enable record-keeping for different business expense categories, making closing the financial year easier.

If you’re using the Deel platform to manage your clients, you can also access popular accounting tools at a discounted rate through Deel Perks. You don’t even need to have contracts signed or receive payments through Deel to access these discounts and perks. You get them when you sign up. It’s a great way to stay tax-ready while cutting costs on essential tools.

Also, we mentioned receipts for tax deductions earlier. Luckily, there’s no need to organize and store paper receipts in the digital age anymore. The IRS accepts digital records. You can snap photos or scan receipts and invoices, upload them to Deel, and Deel will organize and store them safely.

See more: How Freelancers Can Use Deel’s Free Tools for Contracts, Invoicing, and Expenses

Handle your US taxes effortlessly with Deel

As an independent contractor, you may be working with multiple clients, juggling several projects simultaneously, and trying to stay on top of bookkeeping responsibilities related to your work, which can be overwhelming.

Using a single platform to manage your tax and compliance documents, transactions, and invoices can take a lot of that burden off your shoulders.

Deel allows you to:

• Automate your invoicing process
• Manage all your transactions and expenses in one place
• Keep your documentation stored securely on our platform
• Manage multiple clients
• Choose among different withdrawal methods, and more.

Not to mention that being a Deel user comes with many benefits, like Deel Card, Deel Advance, and numerous discounts and vouchers for different in-store and online services, including excellent health insurance in many locations in the world.

Sign up for our platform today to take your contractor experience to a whole new level.