How Much Should I Set Aside for 1099 Taxes?

Being self-employed has its benefits. But there is one major downside — taxes. Between calculating how much you’ll owe, setting aside and paying your estimated quarterly payments, and filing annual income tax, navigating 1099 taxes can be a real headache. Here’s a quick guide for anyone asking, “How much should I set aside for taxes?”

Self-Employment Tax

Ordinarily, your employer would pay half of your Medicare and Social Security taxes. However, if you’re self-employed, you must pay the whole amount — 15.3% of your earnings up to $147,000 (in net profits) and 2.9% of anything you earn over that amount.

Knowing how much to set aside can be hard if you have variable income.The easiest way is to calculate 15.3% of your monthly earnings and place that amount in a separate bank account. That way, you won’t be tempted to spend it.

Federal Income Tax

You don’t only have to pay self-employment tax as an independent contractor — you also need to pay federal income tax. The answer to “How much should I set aside for taxes?” depends on your tax bracket.

Tax brackets are based on your taxable income — your adjusted gross income (AGI) minus the standard deduction or itemized deductions (whichever is greater) — and not your gross income. Here are the brackets for 2023:

• Taxable Income $0–$11,000: 10% of taxable income
• Taxable Income $11,001–$44,725: $1,100 + 12% of the amount over $11,000
• Taxable Income $44,726–$95,375: $5,147 + 22% of the amount over $44,725
• Taxable Income $95,376–$182,100: $16,290 + 24% of the amount over $95,375
• Taxable Income $182,101–$231,250: $37,104 + 32% of the amount over $182,100
• Taxable Income $231,251–$578,125: $52,832 + 35% of the amount over $231,250
• Taxable Income $578,126 or more: $174,238.25 + 37% of the amount over $578,125

Keep in mind that qualified business deductions (like office equipment, software, rented office space, etc.) can lower your taxable income. Just make sure to keep records of purchases in case you’re audited by the IRS.

Estimated Quarterly Payments

The IRS doesn’t just ask you to set aside money to pay when you file — it also requires you to make estimated quarterly tax payments (but only if you expect you will owe more than $1,000 in taxes). These are the typical deadlines:

• First Payment: Due April 15
• Second Payment: Due June 15
• Third Payment: Due September 15
• Fourth Payment: Due January 15 (of the following year)

Remember that the IRS expects you to include your self-employment tax and federal income tax in these payments. Many states with income tax follow this same payment schedule.

State Taxes

Not all states have an income tax. But if you live in a state that does, look into state-specific guidelines for anyone with a 1099 income. Your state may require quarterly payments as well.

Need Help Navigating Taxes?

As you can see, the answer to “How much should I set aside for taxes?” is more complicated than it seems. At STG Accounting, we help you organize, file, and save money on your taxes. Want to learn how we can help your small business? Contact us today!