As a contractor, understanding taxes is crucial to ensure that you’re not only compliant with the law, but also meeting your financial obligations. Taxes may seem daunting, but it’s important to educate yourself about tax laws and how they apply to you. In this article, we’ll take a closer look at what percentage contractors typically pay in taxes.

First and foremost, it’s important to differentiate between employees and contractors. Employees typically have taxes withheld from their paychecks, whereas contractors are responsible for paying their own taxes. As a contractor, you’re considered self-employed and must pay self-employment taxes.

Self-employment taxes include Social Security and Medicare taxes, which equate to 15.3% of your net earnings. For instance, if you earn $100,000 as a contractor, you’ll need to pay $15,300 in self-employment taxes alone.

Aside from self-employment taxes, contractors also have to pay federal income tax. The percentage of federal income tax you pay depends on your income bracket. For 2021, the following income tax brackets apply to single filers:

– 10% on taxable income up to $9,950

– 12% on taxable income between $9,951 and $40,525

– 22% on taxable income between $40,526 and $86,375

– 24% on taxable income between $86,376 and $164,925

– 32% on taxable income between $164,926 and $209,425

– 35% on taxable income between $209,426 and $523,600

– 37% on taxable income over $523,600

If you’re a contractor with a taxable income of $100,000, you would fall in the 24% income tax bracket and would owe $24,400 in federal income tax.

Aside from federal taxes, contractors may also have to pay state and local taxes. The percentage varies depending on where you live and work, so it’s important to consult with a tax professional to determine your tax obligations.

It’s also worth noting that contractors may be eligible for certain tax deductions, such as home office expenses, vehicle expenses, and business supplies. These deductions can help reduce your tax liability and increase your take-home pay.

In conclusion, contractors typically pay a minimum of 15.3% in self-employment taxes and a percentage of federal income tax based on their income bracket. Additionally, state and local taxes may apply. By understanding your tax obligations and taking advantage of tax deductions, you can help minimize your tax liability and ensure compliance with the law.