This guide is for freelancers, independent contractors, gig workers, sole proprietors, and LLC owners. It separates federal taxes, Tennessee obligations, deductions, estimated payments, and filing steps so you can see what you actually owe. Figures below reflect 2026 rules, so confirm them with the IRS and the Tennessee Department of Revenue before you file.
Key Takeaways
- Self-employment tax funds Social Security and Medicare and is separate from federal income tax.
- Tennessee has no earned-income tax, but sales, business, franchise, excise, and payroll taxes may apply.
- Tax is based on net profit, not gross revenue, so expense records matter.
- Check current IRS and Tennessee rates, thresholds, and deadlines before filing.
What Is Self-Employment Tax, and Who Pays It in Tennessee?
Self-employment (SE) tax is the self-employed version of the Social Security and Medicare taxes withheld from an employee's paycheck. You pay both the employee and employer halves. IRS Topic 554 covers the basics. Federal income tax is a separate bill calculated on your taxable income.
Who counts as self-employed
- Sole proprietors
- Independent contractors with 1099 income
- Gig workers, including part-time and temporary ones
- Single-member LLC owners (disregarded for federal purposes)
- Partners in a business
Net earnings, not gross payments
Net profit is business income minus ordinary and necessary expenses. A year with $60,000 in revenue and $15,000 in legitimate expenses produces $45,000 of net profit. That is the starting point for SE tax.
If your net SE earnings reach $400, you generally must file. Sole proprietors report income and expenses on Schedule C and calculate SE tax on Schedule SE.
Side work and W-2 jobs
A W-2 job doesn't cancel SE tax on your side income. Part-time gig income is taxable even when no 1099 is issued. If you also hold an employee job, you can raise paycheck withholding to cover those gig taxes. Entity classification can change how income is reported; the filing section below covers those details.
Tennessee Taxes and Other State Business Obligations
Personal income tax
Tennessee taxes no earned income, so there is no state withholding. The Hall income tax was repealed effective January 1, 2021. Federal income tax and SE tax still apply in full.
Sales and use tax
The state rate is 7%, and local rates add 0% to 2.75% depending on location. Taxable services include:
- Repair of tangible personal property or software
- Cleaning or laundering tangible personal property
- Installation of property that stays tangible
- Software installation
If you sell taxable goods or services, you need a Certificate of Registration. Returns go through TNTAP, usually monthly by the 20th of the following month. Filers averaging $1,000 or less in monthly liability over 12 months may file quarterly.
Franchise, excise, and business tax
Sole proprietors are generally outside franchise and excise taxes. LLCs are different: an individual-owned single-member LLC is still a separate Tennessee taxpayer, even though the IRS disregards it.
- Franchise tax: 0.25% of Tennessee net worth, $100 minimum
- Excise tax: 6.5% of Tennessee taxable income, with a $50,000 standard deduction
- LLC annual report: $300 minimum, rising $50 per member above six, capped at $3,000
Business tax is a separate gross-receipts tax, not a profit tax. State liability generally starts at $100,000 in receipts within a county, and some professional services are exempt.
| Annual in-state receipts | License |
|---|---|
| $3,000 or less | Minimal activity license optional |
| $3,001 to $99,999 | Minimal activity license required |
| $100,000 or more | Standard business license |
The new-business registration fee is $15 per applicable jurisdiction.
If you hire employees
Employees bring federal income tax withholding, Social Security and Medicare withholding plus the employer share, and FUTA (Form 940). Tennessee's unemployment wage base is $7,000 per employee, and the published new-employer rate for "all other industries" is 2.7%. None of this replaces your own SE tax.
Which tax applies?
| Tax | Based on | Who pays |
|---|---|---|
| Federal SE tax | Net SE earnings | Nearly every self-employed person with $400+ net |
| Federal income tax | Taxable income | Everyone with taxable income |
| Tennessee sales tax | Taxable sales | Sellers of taxable goods or services |
| Franchise and excise | Net worth and income | LLCs and corporations, not sole proprietors |
| Business tax | Gross receipts | Businesses over the thresholds |
| Employer taxes | Wages | Businesses with employees |
How to Calculate and Pay Federal Self-Employment Tax
Step-by-step calculation
- Total your business revenue.
- Subtract allowable expenses to get net profit.
- Multiply net profit by 92.35% to get SE earnings.
- Apply 12.4% Social Security, up to the 2026 combined wage cap of $184,500 (W-2 wages count toward the cap).
- Apply 2.9% Medicare, with no cap.
- Add the two. The combined rate is 15.3%.
High earners also owe a 0.9% Additional Medicare Tax above $200,000 (single), $250,000 (married filing jointly), or $125,000 (married filing separately), reported on Form 8959.
A worked example
The IRS illustrates a housecleaner with $21,657 in profit. Her SE earnings are $20,000 ($21,657 × 92.35%), and her SE tax is $3,060. The example is undated, so treat it as a method demonstration, not a current-year quote.
The half-SE-tax deduction
You deduct one-half of SE tax ($1,530 in the example) on Schedule 1, line 15. This lowers your income tax, not your SE tax. It is separate from business expenses and from the standard deduction ($16,100 single, $32,200 joint, $24,150 head of household in 2026).
Estimated payments
If you expect to owe $1,000 or more after withholding and credits, you generally pay quarterly using Form 1040-ES. The 2026 due dates:
- April 15, 2026
- June 15, 2026
- September 15, 2026
- January 15, 2027
The safe harbor is the smaller of 90% of this year's tax or 100% of last year's. Use 110% if last year's AGI exceeded $150,000 ($75,000 if married filing separately). Missing it can trigger an underpayment penalty, which Form 2210 addresses.
What does $100,000 take home?
It depends on what the $100,000 is. Revenue of $100,000 with $30,000 in expenses leaves $70,000 of net profit, which is a very different starting point than $100,000 of profit.
These variables move your take-home pay:
- Filing status and other household income
- Business expenses and the half-SE-tax deduction
- The 20% qualified business income (QBI) deduction, now permanent
- Retirement contributions (SEP up to $72,000; solo 401(k) deferral of $24,500)
- Credits, federal income tax, and SE tax
- Tennessee taxes, if your business is subject to them
Run the numbers on net profit with your actual filing status. Reserving money for quarterly payments as income arrives prevents a surprise bill.
Deductions and Recordkeeping
Common deductible expenses
An expense must be both ordinary (common in your trade) and necessary (helpful and appropriate). Common examples:
- Supplies, advertising, and professional fees
- Business insurance
- Qualifying business travel
- Meals, generally 50% deductible
- Vehicle use: 72.5 cents per mile January through June 2026, 76 cents per mile July through December
- Home office: regular and exclusive use, with a simplified method of $5 per square foot up to 300 square feet
Publication 535 has been discontinued, so use Publication 334 and current IRS expense guidance.
Records to keep
- Invoices, receipts, and bank and payment-app statements
- Mileage logs with date, destination, and purpose
- Contractor payment records
- A note of the business purpose for each expense
Keep a separate business bank account. Mixed personal and business transactions make deductions hard to defend. Generally keep records 3 years, or 6 years if you omitted income exceeding 25% of what you reported.
Keep those records even when payers issue information returns. Forms such as the 1099 do not define taxable income on their own. The 1099-NEC threshold is $2,000 for 2026, and the 1099-K threshold is over $20,000 and more than 200 transactions. You still report all business income either way.
If your books are messy or your finances cross borders, VJM Global can help with bookkeeping, tax compliance, and accounting organization. The firm supports US individual filers on Form 1040 and business returns.
Filing Checklist and Common Mistakes
Annual checklist
- Gather income records and collect all 1099s
- Document expenses and mileage
- Complete Schedule C, Schedule SE, and Form 1040
- Make or reconcile quarterly estimated payments
- Handle Tennessee registrations, sales tax returns, business tax, franchise and excise returns, and any LLC annual report
Individual returns are due April 15, 2027 for calendar-year 2026. Partnerships and S corporations are due March 15, 2027.
An extension to file does not extend the time to pay. Tennessee franchise, excise, and business tax returns are due the 15th day of the fourth month after year-end.
How structure changes reporting
| Structure | Federal reporting | Owner SE treatment |
|---|---|---|
| Sole proprietor | Form 1040 + Schedule C | SE tax on net earnings |
| Single-member LLC (default) | Same as sole proprietor | Same as sole proprietor |
| Multi-member LLC or partnership | Form 1065, Schedule K-1 | Generally SE tax; limited-partner exception is narrow |
| S corporation | Form 1120-S, Schedule K-1 | Reasonable wages face payroll tax; distributions don't |
An LLC does not automatically reduce SE tax. S corporation owners must pay themselves reasonable compensation first. Model the SE tax impact with a professional before you change entity type.
Common mistakes
- Treating "no Tennessee income tax" as "no tax"
- Skipping quarterly payments
- Reporting gross receipts instead of net profit
- Claiming deductions you can't document
- Overlooking sales or business tax
- Using outdated thresholds
The IRS estimated a $71 billion SE-tax underreporting gap for tax year 2022, and misreported business income and expenses remain a top focus.
Frequently Asked Questions
What's the tax rate for self-employment?
The regular federal rate is 15.3%: 12.4% Social Security plus 2.9% Medicare, applied to 92.35% of net profit. Social Security stops at the annual wage cap, and an extra 0.9% Medicare tax applies at higher incomes. Confirm current figures on IRS.gov.
Does TN have an income tax?
No. Tennessee doesn't tax earned income. Federal income tax, SE tax, and Tennessee sales, business, franchise, or excise taxes may still apply.
How much will I make after taxes if I make $100,000 a year in Tennessee?
It depends on whether $100,000 is revenue or net profit, plus filing status, deductions, credits, and other income. SE tax and federal income tax both apply, with no Tennessee income tax on top.
How are Social Security benefits taxed?
Benefit taxation is separate from SE tax. Up to 50% or 85% of benefits may be taxable depending on your combined income. Single thresholds are $25,000 and $34,000; joint are $32,000 and $44,000.
Do self-employed people in Tennessee pay state income tax?
No, not on earned income. Business-level taxes such as sales tax, business tax, or LLC franchise and excise tax are separate and depend on your activity and structure.
Do I need to make estimated tax payments as a self-employed person in Tennessee?
Probably, if you expect to owe $1,000 or more in federal tax after withholding. Tennessee has no personal income tax estimates, but LLCs with large franchise and excise liability may owe estimated installments.
