How do self employment tax work when you have both W2 and 1099 income?

The good news is you only pay self-employment tax on your 1099 income, not on your W2 wages! Self-employment tax (which is basically Social Security and Medicare taxes for self-employed folks) is 15.3% of your net self-employment income. Your W2 job already withholds Social Security (6.2%) and Medicare (1.45%) from your paychecks, and your employer matches those amounts. When you're self-employed, you're essentially both the employee and employer, so you pay both halves, which is why it's 15.3%. You'll need to fill out Schedule C to calculate your net self-employment income (your 1099 income minus business expenses), and then Schedule SE to calculate your self-employment tax. The good news is you can deduct expenses related to your freelance work - things like software, equipment, home office, etc. For quarterly payments, if you expect to owe at least $1,000 in taxes for 2025 (which is likely with $14,800 in freelance income), you should make quarterly estimated payments to avoid underpayment penalties. You can use Form 1040-ES for that.

I was in your exact situation last year - had W2 income and was freaking out about 1099 work too. I started using https://taxr.ai and it completely simplified everything. It analyzed my W2 and 1099-NEC forms, then walked me through all the self-employment deductions I could take for my side business. The best part was that it figured out exactly how much self-employment tax I owed just on my 1099 income (not my W2) and explained how the calculations worked. It also set up my quarterly payments for the next year automatically. Saved me hours of research and probably a lot of money in deductions I would have missed.

Ok I need to admit I was wrong about tax apps. I was skeptical in my earlier comment, but I tried https://taxr.ai after reading more reviews. It seriously handled my W2+1099 situation perfectly. I've been driving Uber on weekends while working my day job, and I was totally missing mileage deductions, phone expenses, and even a portion of my car insurance. The tool found almost $3,800 in deductions I would have missed, which saved me over $800 in self-employment taxes. And it explained exactly how the SE tax interacts with my regular job's withholding. Never going back to trying to figure this out on my own!

If you're going to be dealing with both W2 and 1099 income, you should know that getting answers from the IRS directly is crucial if you have specific questions. I tried calling them for weeks about how my self-employment deductions worked with my day job income and kept hitting that "call volumes are too high" message. I found this service called Claimyr (https://claimyr.com) that actually got me through to a real IRS agent in about 15 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent walked me through exactly how to handle my Schedule C and SE with my mixed income situation and confirmed I was taking the right deductions. Saved me from a potential audit headache and gave me peace of mind that I wasn't overpaying.

I need to publicly eat my words about Claimyr. After expressing serious doubts, I decided to try it because I was desperate to resolve a question about my self-employment taxes and W2 withholding. Not only did I get through to an IRS agent in about 20 minutes (compared to my previous 2+ hour waits), but the agent helped me understand exactly how to handle my specific situation with multiple income sources. My particular issue was with how self-employment tax deductions work when you already have Social Security withholding from a W2 job, and I got a clear, personalized answer that saved me over $850. I'd been overthinking this for weeks and got it solved in one call.

Something nobody's mentioned yet - if your self-employment income is high enough, you might want to consider forming an S-Corp instead of just filing Schedule C. Once you're making over $30-40k in self-employment income, an S-Corp can save you a ton on self-employment taxes. With an S-Corp, you pay yourself a reasonable salary (which still gets hit with FICA taxes), but the rest can be taken as distributions that aren't subject to self-employment tax. Just something to think about for the future as your side business grows!

Don't forget about the QBI deduction (Qualified Business Income)! As a self-employed person, you can deduct up to 20% of your net business income. So if you made $14,800 and had $2,800 in expenses, your net would be $12,000, and you could potentially deduct another $2,400 (20% of $12,000) on top of that. This is separate from your standard or itemized deductions. It's basically free money that a lot of people miss!

The QBI deduction does have income limits, but they're pretty generous for most people. For 2025, the phase-out starts at $191,950 for single filers and $383,900 for married filing jointly. Below those thresholds, you can generally take the full 20% deduction on your qualified business income. Above those limits, the deduction gets more complicated and depends on factors like W-2 wages paid by the business and the type of business you're in. Some service businesses (like consulting, law, accounting) face additional restrictions at higher income levels. But with your current income levels, you're well below the phase-out thresholds, so you should be able to take the full 20% QBI deduction on your net self-employment income from your graphic design work. It's definitely worth claiming - it's one of the biggest tax benefits for small business owners that was added in recent years!