1099 Contractor Taxes: What to Set Aside

Most 1099 contractors should set aside roughly 20% to 30% of their net profit for federal taxes, plus whatever their state charges. In our 2026 examples, a single contractor with $60,000 of profit owes about 20% federal (self-employment tax plus income tax), while someone adding side income on top of a W-2 job can owe 30% or more on the side income. Set the money aside as each payment arrives, and send it to the IRS through quarterly estimated payments.

All figures are for the 2026 tax year and will be updated when the IRS publishes new numbers.

What you owe as a contractor

No employer withholds anything from 1099 income, so you're responsible for two federal taxes:

The SE tax math is broken down step by step in self-employment tax 2026 explained.

Both are based on net profit, meaning payments received minus business expenses, not on the gross amounts on your 1099 forms.

How much to set aside: 2026 examples

These estimates use the Self-Employment Tax Calculator's 2026 formulas for a contractor with no other income, the standard deduction and the QBI deduction. State and local taxes are not included.

Notice that SE tax is the largest piece at lower incomes. Even a contractor who owes little income tax still owes 15.3% on most of their profit.

Your average rate isn't the whole story. At $60,000 of profit (single), each additional dollar costs about 23.1 cents in federal tax; at $100,000, about 30.5 cents. If your income is growing, set aside closer to your marginal rate on the new money.

Side gig on top of a W-2 job

Side income is stacked on top of your wages, so it's taxed at your highest bracket from the first dollar. A single filer earning $70,000 in W-2 wages with $20,000 of side profit owes about $2,826 of SE tax and $3,271 of extra income tax on the side business, about $6,097 in total, or 30.5% of the side income.

Your W-2 withholding covers your wages, not the side income. You can either make estimated payments or increase withholding at your job with a new Form W-4. Extra withholding counts as paid evenly through the year, which can help if you're behind.

A simple set-aside system

For exact due dates and the safe-harbor rules, see quarterly estimated taxes 2026.

If you set aside too much, the surplus is yours after you file. Setting aside too little means a bill plus a possible penalty.

Ways to lower what you owe

For equipment, compare Section 179 vs bonus depreciation. For entity choice, see S corp vs LLC: when the election saves tax.

About your 1099 forms

Clients report payments to you on Form 1099-NEC, and payment apps or marketplaces may send a Form 1099-K. For payments made in 2026, the 1099-NEC reporting threshold rose to $2,000 under the 2025 tax law. Whether or not you receive a form, all of your business income is taxable. Keep your own records of every payment and reconcile them against the forms you receive.

The IRS Self-Employed Individuals Tax Center collects the main forms and rules.

When to talk to a CPA or enrolled agent

Talk to a CPA or enrolled agent if you're in your first year of contracting, work in several states, have income near the QBI threshold, are considering an S corp, or received a 1099 that doesn't match your records. They can also tell you whether you're really a contractor: if a client controls how, when and where you work, you may be misclassified as a contractor when you should be an employee.

Related guides

For more ways to cut your bill, read tax-saving strategies for small businesses and legal ways to lower your taxes in 2026.

See your own set-aside rate with the Self-Employment Tax Calculator, and turn it into four payments with the Quarterly Estimated Tax Calculator.

This guide is general information, not tax advice. Figures are for the 2026 tax year and will be updated as the IRS releases new figures.