Self-employment – what documents you need

Self-employed is a term used for people who make money through their own self-directed work. It includes people who call themselves sole proprietors, gig workers, independent contractors, and freelancers.

If you receive a W-2 from an employer, then you are probably not self-employed.

Being self-employed is like running your own business. You have to keep records of your income and expenses. When you file your yearly tax return, you will include Schedule C to report what you’ve earned.

There are two kinds of tax everyone pays to the federal government each year:

• Federal income tax, which is a portion of how much you earn that increases as you earn more
• FICA, which is a flat percentage of 2.9% for Medicare and 12.4% for Social Security

When you are employed and receive a W-2, your employer takes these taxes out of your paychecks and pays them to the federal government for you. Also, the employer pays half of the FICA tax, and you pay the other half (7.65%).

When you are self-employed, these taxes are not usually paid by anyone else. Also, you have to pay the full amount (15.3%) of FICA tax yourself. You have to make tax payments during the year on your own, usually through Quarterly Estimated Payments.

You should keep records related to:

• Income or payments you receive for your self-employment work
• Expenses, such as things you purchased to complete the work
• Mileage you drove while working in a vehicle you own
  • Note that the mileage going to the first work site/client of the day and leaving the last work site/client of the day should not be counted

Some common expenses our clients have include:

• Cleaning supplies
• Stationery
• Gloves, masks, and other protective equipment
• Bags for keeping food warm

Yes, you may receive tax forms if you do work for companies or individuals. It is common to receive a form called 1099-NEC Non-Employee Compensation. This should be included as income on your Schedule C.

These forms may not account for all your income. You may not be issued a 1099-NEC for different reasons. One of these reasons is that a 1099-NEC is only required if you earned at least $600.

Even if you do not receive a tax form for all your income, you are still required to report all of your self-employment income on Schedule C.

Yes, with some restrictions. Our Prepare Taxes for Me Online and Prepare Taxes for Me In-Person can prepare simple Schedule Cs.

If you have any of these situations, then we cannot prepare your taxes. Our File on My Own option may be the better option:

• You paid others to do work
• You paid more in expenses than you earned from self-employment
• You have inventory that you track
• You have equipment that needs to be depreciated over multiple years
• You had expenses over $35,000

Please see the Frequently Asked Questions for a full list of what is out of scope for our volunteer preparers.