Ohio Self-Employment Tax: What You Need to Know as a Contractor

For contractors in Ohio, understanding self-employment tax is crucial for financial health and compliance. This tax significantly impacts earnings and must be addressed properly.

Who Must File

Ohio individuals working as sole proprietors, freelancers, or independent contractors must file self-employment tax returns if they earn $400 or more in net income. The IRS requires this to ensure contributions to Social Security and Medicare through the 15.3% self-employment tax—12.4% for Social Security and 2.9% for Medicare. For earnings above the Social Security wage base limit of $160,200 in 2024, the 12.4% Social Security tax no longer applies, though the 2.9% Medicare tax continues. Additionally, an extra 0.9% Medicare tax is applied to earnings over $200,000 for single filers or $250,000 for married couples filing jointly.

Calculating Net Earnings

Accurately calculating net earnings is key for determining self-employment tax obligations. This begins with identifying gross income, which includes all business revenue, and subtracting allowable business expenses such as office supplies, travel, and professional fees. The IRS provides guidelines on deductible expenses that can maximize deductions while ensuring compliance.

Depreciation and amortization also reduce taxable income. Contractors can use depreciation to spread the cost of assets like machinery or vehicles over their useful life and amortization for intangible assets. Keeping thorough records and consulting a tax professional can simplify these processes.

Quarterly Payments

Ohio contractors with a tax liability of $1,000 or more must make quarterly payments to avoid penalties. For the 2024 tax year, these payments are due on April 15, June 17, September 16, and January 15 of the following year. Failing to meet these deadlines results in penalties calculated based on the unpaid amount and delay duration. Regularly reviewing income and expenses ensures payments align with actual earnings. IRS Form 1040-ES can help calculate these payments.

Penalties for Underpayment

The IRS imposes penalties for underpayment of estimated taxes to encourage timely payments. Penalties are calculated based on the unpaid amount and the time it remains unpaid. Contractors can avoid penalties by following the IRS “safe harbor” rule, paying at least 90% of the current year’s tax liability or 100% of the prior year’s tax, whichever is lower. This is particularly useful for those with fluctuating income. Using accounting software or consulting tax professionals can ensure accurate estimates.

Claiming Deductions

Deductions help reduce taxable income and overall tax liability. Contractors must understand which expenses qualify and how to document them properly to maximize benefits.

The home office deduction is available to those using part of their home exclusively for business. It can be calculated using the simplified method—$5 per square foot (up to 300 square feet)—or the regular method, which involves actual expenses like utilities, mortgage interest, or rent based on the percentage of the home used for business. Proper documentation, such as utility bills and a floor plan, is essential.

Vehicle expenses are another significant deduction for contractors using personal vehicles for business. The IRS allows two methods: the standard mileage rate, 65.5 cents per mile for 2023, or the actual expense method, which deducts costs like fuel, maintenance, insurance, and depreciation. Detailed mileage logs or receipts are critical for supporting claims. Mileage tracking apps can simplify record-keeping and ensure compliance.