Tax Relief AnswersSelf-Employed and Behind on Taxes
The short answer
When you work for yourself, no employer withholds tax, so you owe income tax plus self-employment tax at 15.3% of net earnings, per the IRS self-employment tax page. The IRS expects you to pay during the year with Form 1040-ES estimated payments if you expect to owe $1,000 or more, per its estimated taxes page. If you are already behind, the same IRS payment plans open to employees are open to you.
The taxes and thresholds
| Item | Figure | Source |
|---|---|---|
| Self-employment tax rate | 15.3%: 12.4% Social Security plus 2.9% Medicare | IRS self-employment tax page |
| When you owe self-employment tax | Net earnings from self-employment of $400 or more | Same |
| Form used to figure it | Schedule SE | Same |
| Deduction | The employer-equivalent portion of self-employment tax, in figuring adjusted gross income | Same |
| Estimated tax required | You expect to owe $1,000 or more when you file | IRS estimated taxes page |
| Form for estimated payments | Form 1040-ES | Same |
| Payment periods | Four per year, each with its own due date | Same |
| Usual way to avoid the underpayment penalty | Pay at least 90% of this year's tax or 100% of the tax on last year's return, whichever is smaller | Same |
How the balance grows
If estimated payments are missed, the IRS may charge a penalty for underpayment of estimated tax. If the return is filed late, the failure-to-file penalty is 5% of the tax due per month, up to 25%, per the IRS failure-to-file page. If the tax is paid late, the failure-to-pay penalty is 0.5% per month, up to 25%, falling to 0.25% while an approved payment plan is in effect if you filed on time, per the IRS failure-to-pay page. Interest for individuals is 7% per year for the quarter starting October 1, 2026, compounded daily, per the IRS interest page.
Steps
- File every missing return first, even if you cannot pay. Filing stops the larger failure-to-file penalty from growing. See unfiled tax returns.
- Figure self-employment tax on Schedule SE for each year, and take the deduction for the employer-equivalent portion.
- Add up the total balance, including penalties and interest, from your IRS online account or latest notices.
- If you owe $50,000 or less, apply for a payment plan online; a short-term plan of up to 180 days costs $0 to set up, and a long-term plan with direct debit costs $29 online, as of October 2026.
- Start Form 1040-ES payments for the current year at the same time. A new unpaid balance can default a payment plan.
- Ask about first-time penalty abatement if your prior 3 years were filed and paid without penalties.
Common mistakes
- Ignoring small side income. Net earnings from self-employment of $400 or more mean you owe self-employment tax.
- Skipping estimated payments to pay the old balance. You then end the year with two balances instead of one.
- Applying for an Offer in Compromise while current-year estimates are unpaid. The IRS Offer in Compromise page lists making required estimated tax payments as a condition to be eligible.
Self-employed people with income at or below 250% of the federal poverty guidelines can get free help from a Low Income Taxpayer Clinic. If your books are behind for several years, a licensed professional (enrolled agent, CPA or attorney) can prepare the returns; ask for the fee in writing before you hire anyone.
FAQ
What is the self-employment tax rate?
The IRS lists the self-employment tax rate as 15.3%: 12.4% for Social Security and 2.9% for Medicare.
Do I have to make estimated tax payments?
The IRS says individuals, including sole proprietors, generally must make estimated payments if they expect to owe $1,000 or more when they file. Use Form 1040-ES.
Can I get an IRS payment plan if I am self-employed?
Yes. Individuals who owe $50,000 or less in combined tax, penalties and interest and have filed all required returns can apply online for a long-term plan.
How do I avoid the estimated tax penalty next year?
The IRS says you generally avoid it if you pay at least 90% of the current year's tax or 100% of the tax on last year's return, whichever is smaller.