Self-Employment Tax

• You must pay self-employment tax equal to 15.3% of all income up to $106,800 per year as of 2009. Any amount you earn beyond $106,800 is taxed at only 2.9%.
  
  

Income Tax

• You also must pay income tax, which is in addition to self-employment tax. Your income tax rate will vary depending on what tax bracket you fall in based on your income level.
  
  

Quarterly Taxes

• You must file quarterly taxes based on your estimated annual earnings. If you earn $25,000 during the first quarter, you must pay taxes as if you will earn $100,000 for the year, and you must make that estimated payment to the IRS.
  
  

Tax Return

• At the end of the year, you must prepare a tax return and file it with the IRS. You might be entitled to a refund if you overpaid on your quarterly estimates. If you underpaid, you might have to pay additional taxes.
  
  

Keep Written Records

• Because you don't receive a paycheck from an employer, it is important you keep a detailed written record of all income you receive during the year. You will need written verification if the IRS audits you and your tax return.