BridgeWorks
Tax Day was yesterday. By now, most filers have either submitted their returns or filed an extension. Across our participant community, the steepest learning curve every year belongs to the same group: people who started self-employment work at some point in the prior year and are filing a return that includes 1099 income for the first time.
We sat down with a few of them this week, and the patterns are remarkably consistent. Here is what they wish they had known earlier, in their own words and in ours.
"I Had No Idea I Owed Self-Employment Tax on Top of Income Tax"
This is the single most common surprise. When you are a W-2 employee, your employer pays half of your Social Security and Medicare taxes (about 7.65 percent of wages) and you pay the other half through withholding. When you are self-employed, you pay both halves. That is roughly 15.3 percent of your net self-employment income, on top of regular federal income tax.
For someone earning $40,000 net from freelance work in their first year, this can mean a tax bill that is six to eight thousand dollars higher than they expected. We met two participants this month who got hit with this for the first time and had not set anything aside.
If you are starting self-employment work, the simplest rule of thumb we use: set aside roughly 30 percent of your net self-employment income in a separate savings account from day one. That covers federal income tax, self-employment tax, and a typical state income tax. Adjust based on your actual rate, but starting with 30 percent will keep you out of trouble.
"Quarterly Estimated Taxes Are Not Optional"
The IRS expects self-employed workers to pay taxes throughout the year, not just at the end of it. If you owe more than $1,000 at filing time, you can be hit with an underpayment penalty even if you pay the full balance by April 15.
Quarterly estimated payments are due four times a year: April 15, June 15, September 15, and January 15. The IRS publishes a worksheet (Form 1040-ES) that walks through the calculation. Many tax software products will generate the vouchers for you based on your prior year's return.
The participant we spoke with who had the smoothest filing this year set up a calendar reminder for each quarterly date the day she received her first 1099 last spring. By the time April rolled around, she owed nothing additional and got a small refund. The participant who got hit with the largest penalty had not paid anything quarterly because "no one told me I had to."
"Track Expenses As You Go, Not in March"
Self-employed workers can deduct legitimate business expenses against their self-employment income. That includes a portion of home office space, mileage for business travel, professional supplies, software subscriptions, and many other categories.
The catch is documentation. If you cannot produce receipts and a clear business purpose, the deduction does not survive an audit. And the second catch is that reconstructing a year's worth of expenses in March is genuinely awful.
The most useful thing we have learned from participants who have filed multiple years of self-employment returns: pick a system early and stick with it. A simple folder of receipts, a spreadsheet updated monthly, or a cheap accounting tool will all work. What does not work is waiting until tax season.
For mileage specifically, the standard mileage rate for 2025 was 70 cents per mile. That adds up quickly for delivery, rideshare, or any work that involves driving between client sites. A mileage log started in January is worth far more than one reconstructed in April.
"I Did Not Realize I Could Open a Solo 401(k)"
For participants who had a profitable self-employment year, retirement options exist that most people do not realize they qualify for. A Solo 401(k) (also called a one-participant 401(k)) lets a self-employed person with no other employees contribute substantially more than a regular IRA allows. The 2025 contribution limit is $23,500 in employee contributions plus an employer profit-sharing contribution of up to 25 percent of net self-employment earnings, with a combined cap of $70,000.
A SEP-IRA is simpler to set up and has a lower combined cap. Both reduce taxable income in the year of contribution.
The point is not that everyone should max one of these. The point is that the option exists, and most freelancers we work with have never heard of it.
"I Should Have Separated My Business and Personal Finances Sooner"
The single biggest piece of cleanup advice from experienced self-employed participants: open a separate bank account for your business income and expenses, and run everything through it. Even if you are technically a sole proprietor and the IRS does not require it, the bookkeeping and tax preparation become dramatically easier.
A free or low-fee business checking account at a credit union or online bank is enough. You do not need a formal business entity to set one up. You do not even need a business credit card, though one with no annual fee makes expense tracking easier.
"Health Insurance Was the Hardest Part"
This is the most common non-tax pain point for newly self-employed participants. Without an employer plan, health insurance has to be either purchased through the ACA marketplace, joined through a spouse's plan, or purchased independently at much higher cost.
A few things worth knowing: self-employed people can deduct health insurance premiums above the line, which lowers taxable income. The ACA marketplace offers premium subsidies for households at most income levels, and the subsidies for 2025 plans were extended through 2026 thanks to the most recent budget reconciliation. If you are estimating income for marketplace enrollment, err on the side of estimating high — repaying excess subsidies at tax time is much easier to absorb than facing an unexpected balance due.
A Closing Note
Self-employment is its own job in addition to whatever you are technically self-employed doing. The tax piece, the bookkeeping piece, the insurance piece, and the retirement piece are all genuinely demanding. None of it is intuitive, and most of it is poorly explained anywhere.
If you are early in this journey and want to think any of this through with a real person, our career services team is here. We are not tax professionals — for complex situations, we will refer you to one — but we can help you set up the basic structures that will make next year's April 15 a much less painful day.
