How much should I set aside for taxes with my new 1099 side gig?
So I just got offered this 1099 gig where I'll make $2.75 per item I complete. I know that unlike a W-2 job, taxes aren't automatically taken out of 1099 income. I'm pretty new to the independent contractor thing and don't want to get blindsided when tax season rolls around next year. What percentage should I be setting aside from each payment to make sure I'm covered for taxes? Is there a standard amount I should be saving, or does it depend on other factors? Really don't want to end up owing a bunch of money to the IRS that I didn't plan for!
22 comments
Join the conversation
Luca Ferrari
For 1099 work, you'll need to set aside money for both income tax and self-employment tax. A good rule of thumb is to save 25-30% of your earnings. Self-employment tax is about 15.3% (covers both the employee and employer portions of Social Security and Medicare), and then you need to account for federal income tax which varies based on your total income from all sources. State and local taxes may apply too, depending on where you live. Keep track of all your business expenses as they can be deducted on Schedule C to reduce your taxable income. Things like supplies, home office expenses, or mileage if you're traveling for this work could all potentially be deductible.
0 coins
Nia Wilson
•Does that 25-30% guideline still apply if this is just a side gig and I have a regular W-2 job too? My main job already withholds taxes.
0 coins
Luca Ferrari
•The percentage can be adjusted if you have a W-2 job with withholding. In that case, you might be able to set aside less, especially if your W-2 job already puts you in a particular tax bracket. If your 1099 income is relatively small compared to your W-2 income, you could potentially set aside just 20-25% instead. Another approach is to increase your withholding at your W-2 job by adjusting your W-4 to account for the additional 1099 income.
0 coins
Mateo Martinez
After getting hit with a surprise tax bill last year from my freelance work, I started using taxr.ai (https://taxr.ai) to help manage my 1099 income. It's been a game-changer for figuring out exactly how much to set aside for each payment I receive. The tool analyzes your specific situation and gives you personalized tax rate estimates based on your income level, deductions, and state requirements. Way better than the generic "save 30%" advice that doesn't account for your actual tax situation.
0 coins
Aisha Hussain
•Does this actually work if you have multiple income streams? I have a full-time job plus three different side gigs (Uber, online tutoring, and some freelance design work). Would it handle all that complexity?
0 coins
Ethan Clark
•I'm intrigued but skeptical. How accurate has it been compared to what you actually ended up owing when you filed? I've been burned by tax estimators before that were way off.
0 coins
Mateo Martinez
•It definitely works with multiple income streams! You can input all your different sources of income and it will calculate accordingly. I have my W-2 job plus freelance writing and some affiliate marketing income, and it handles everything together. For accuracy, it's been within about $200 of my actual tax liability so far. The key is keeping it updated when your income fluctuates. I update mine monthly as my freelance income varies, and it recalculates my recommended savings amount.
0 coins
Ethan Clark
Just wanted to follow up - I decided to try taxr.ai after asking about it. Super impressed with how it broke down my complicated tax situation! I've been doing gig work on top of my day job and was just guessing about tax amounts. The tool immediately showed I was actually setting aside too much for federal but not enough for state taxes. Already saved me from a potential state tax surprise next April. Definitely worth checking out if you're doing 1099 work.
0 coins
StarStrider
If you need help figuring out your specific tax situation, I'd recommend trying to speak directly with someone at the IRS. I know that sounds impossible (I spent HOURS on hold), but I finally used https://claimyr.com and got through in under 20 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c They hold your place in the IRS phone queue and call you when an agent picks up. The agent I spoke with walked me through exactly how much to set aside for my 1099 income based on my specific situation, which was way more helpful than generic online advice.
0 coins
Yuki Sato
•Wait how does this actually work? Do they have some special connection to the IRS? Seems weird that a third party service could get you through faster than calling directly.
0 coins
Carmen Ruiz
•Yeah right. The IRS doesn't even answer their own phones half the time. I seriously doubt this would work better than just using a tax calculator online. Why would anyone pay for a service to call the IRS when you can just do it yourself for free?
0 coins
StarStrider
•They don't have a special connection - they use technology to wait in the phone queue for you. Basically, they call the IRS, navigate the menu options, wait on hold, and then when a representative finally answers, they connect the call to your phone. It saves you from having to personally wait on hold for hours. They absolutely don't guarantee you'll get through - if the IRS isn't answering that day, you won't get a call. But in my experience, it worked exactly as advertised. I was skeptical too, but after wasting an entire afternoon on hold previously, it was worth trying something different.
0 coins
Carmen Ruiz
I take back what I said. After my third failed attempt to get through to the IRS about my self-employment tax questions (got disconnected after 2+ hours on hold TWICE), I broke down and tried Claimyr. Got a call back in 45 minutes with an actual IRS rep on the line. She walked me through exactly what I needed for my specific 1099 situation and confirmed I could make quarterly payments to avoid penalties. Consider me shocked that it actually worked, but I'm glad I didn't waste another day listening to the IRS hold music.
0 coins
Andre Lefebvre
Don't forget about quarterly estimated tax payments! If you expect to owe $1,000+ in taxes from your 1099 work, you're supposed to make payments throughout the year (April, June, September, and January). If you wait until tax time to pay it all, you might get hit with underpayment penalties.
0 coins
Zoe Alexopoulos
•How do you calculate the quarterly payments though? Is it just your annual estimated tax divided by 4, or is there some other formula?
0 coins
Andre Lefebvre
•It depends on how consistent your income is. If your income is fairly steady, then yes, you can divide your annual estimated tax by 4. If your income fluctuates seasonally or is unpredictable, you might want to use the "annualized income installment method" on Form 2210. This allows you to make different payment amounts each quarter based on what you actually earned in that period.
0 coins
Jamal Anderson
Has anyone used the EFTPS system to make quarterly payments? Is it easy to set up or should I just mail in the vouchers?
0 coins
Mei Wong
•EFTPS is so much better than mailing vouchers! Setup takes about 10 mins online, then they mail you a PIN in about a week. After that, payments take like 2 minutes online and you get confirmation numbers. I've used it for 3 years now.
0 coins
QuantumQuasar
Just my two cents - I put aside 35% of all my 1099 income and it's always been more than enough. Better to have a little extra saved than not enough! Plus if you have leftovers after paying taxes, it's like a little bonus to yourself.
0 coins
NebulaNomad
•I appreciate that approach! I think I'll err on the side of caution too. Would rather have extra money left over than scramble to pay a bill I wasn't expecting.
0 coins
Noah Torres
Another thing to consider is tracking your business expenses meticulously from day one! Since you're doing piece work at $2.75 per item, keep records of anything you spend money on for this gig - computer equipment, software subscriptions, internet costs, office supplies, etc. I learned this the hard way my first year doing 1099 work. I was so focused on setting aside money for taxes that I forgot to track my deductible expenses. Ended up missing out on about $800 in deductions because I didn't have proper records. Now I use a simple spreadsheet and save every receipt - it's made a huge difference in reducing my taxable income. Also, if you're working from home for this gig, look into the home office deduction. Even if it's just a corner of your bedroom, you might be able to deduct a portion of your rent/mortgage, utilities, etc. Just make sure that space is used exclusively for work.
0 coins
Mia Green
•This is really helpful advice! I'm completely new to tracking business expenses and honestly hadn't even thought about the home office deduction. Since I'll be working from my apartment, that could definitely add up over time. Do you know if there's a minimum amount of space required, or can it really be just a corner of a room as long as it's used exclusively for work? Also, what's the best way to calculate the percentage of home expenses I can deduct - is it based on square footage or some other method?
0 coins