Breaking Down Solo Taxes: Types, Brackets, Fines, and Penalties

When you work for yourself you’re on the hook to calculate and pay your taxes on your own. But unfortunately how much you owe depends on how much you make and where you make it. 

Overall, there are four main types of taxes you may have to pay as a solopreneur.

• Federal Income Tax
• Self-Employment Tax
  
• State Income Tax
• Franchise Taxes

Here’s a breakdown of all of the types of taxes you pay, what the rates look like, who you pay them to, and what the penalties are if you get them wrong.

Federal Income Tax Brackets 

Federal tax brackets operate under a progressive system. That means your income is taxed in layers, and the rate increases as your income rises. You pay the rate associated with each bracket only on the portion of your income that falls within that specific range. 

That means your effective tax rate is not the same as the top tax bracket you hit. Here’s how it breaks down.

Self-Employment Tax 

This tax covers Social Security and Medicare, specifically. If you’re a W2 employee, it’s called Payroll tax. It’s paid to the federal government, not your state.

When you have an employer, however, your company splits this tax with you. If you work for yourself, by default you’re on the hook for the entire thing.

This is where a smart tax strategy like an S Corp with Lettuce can unlock major savings.

State Income Tax  

State income taxes have a huge range–some states have no tax at all, and some have high taxes on high earners. As another hiccup, some states have Flat Taxes that tax all of your income at one rate, while others have progressive tax rates, like Federal Income Tax.

Local Taxes

State income taxes have a huge range–some states have no tax at all, and some have high taxes on high earners. As another hiccup, some states have Flat Taxes that tax all of your income at one rate, while others have progressive tax rates, like Federal Income Tax. Here are some types of local taxes and examples of where they’re in effect.

Franchise Taxes

Some states also have taxes and fees specifically for businesses–and when you work for yourself, that’s what you are. Here are some examples and where you might find them.

Paying Your Taxes When You're Self-Employed

When Do You Pay?

The IRS expects you to make quarterly estimated tax payments if you’ll owe at least $1,000 in federal taxes for the year. These payments are due four times a year:

• April 15 (for income earned Jan–March)
• June 15 (for April–May)
• September 15 (for June–August)
• January 15 of the following year (for September–December)

Miss a payment or underpay? You could owe penalties and interest.

What Are You Paying

You’re responsible to pay your federal taxes (income and self employment) and your state local taxes. It’s up to individuals to calculate these.

How Do You Pay?

The easiest way is through the IRS Direct Pay system or by using estimated tax vouchers (Form 1040-ES). If you use accounting software, it may calculate and schedule these payments for you.

Some freelancers and business owners open a separate bank account and set aside 25–35% of their income for taxes throughout the year. It’s not glamorous, but it’s better than scrambling at tax time.

Penalties and Interest for Underpaying or Missing Tax Payments 

Unfortunately, it’s important to get these numbers right when you're self employed. If you don’t you could owe penalties. Here’s how those break down. 

1. Underpayment Penalty 

If you don’t pay enough in quarterly estimated taxes, the IRS may charge you an underpayment penalty — even if you pay your total taxes in full by April 15.

• How much? Usually between 3% and 8% of the underpaid amount, depending on current IRS interest rates.
  • When does it apply? If you didn’t pay at least:
  • 90% of your current year’s tax, or
• 100% of last year’s tax (110% if you made over $150,000)
• The penalty is calculated quarterly, so missing just one quarter can trigger it.

2. Late Payment Penalty 

If you owe taxes and don’t pay by the due date (typically April 15), the IRS charges a 0.5% penalty per month on the unpaid amount — up to 25% total. Even if you filed on time at the end of the year, you'll get hit with this if you didn’t pay on time.

3. Late Filing Penalty

If you don’t file your tax return by the deadline, the penalty is much worse:

• 5% per month, up to 25% total
• If your return is over 60 days late, there’s also a minimum penalty of $485 or 100% of the tax owed, whichever is less.

4. Interest

The IRS charges interest on unpaid taxes, compounded daily.

• Current rate (as of 2025): 8% annually
• Applies to any balance not paid by the due date, plus on top of any penalties

Let Lettuce Automate Your Tax Strategy and Payments

Handling taxes when you’re self employed can be stressful–there’s a lot to keep track of and that you’re on the hook for. Luckily, you don’t have to go it alone.

With Lettuce, you can say goodbye to tax stress and be confident you’ve got all the hard stuff under control.

• Tax Strategy - Lettuce sets your business up with a sound strategy to help you lower your overall tax burden, including setting you up as an S Corp.
• Automatic Tax Payments  - Instead of quarterly taxes yourself, Lettuce automates your payments for you each month. It calculates what you owe, and delivers it directly to the state and federal government.
• Get Every Deduction You Deserve - Lettuce will automatically recommend strategies that make
• End of Year Filing - With Lettuce Try our savings calculator today to see what you could save with Lettuce

Try our tax savings calculator today to see what you could save with Lettuce.