Self-employment tax consists of Social Security and Medicare tax, which are the same taxes that would be withheld from your pay if you worked for an employer. If you work for yourself, you’ll need to ensure you’re handling your tax filing correctly. That means paying self-employment tax, typically in four estimated quarterly installments along with any federal, state, and local income tax owed.
Here’s what you should know about self-employment tax if you’re contemplating being your own boss or are already up and running as a freelancer.
Key Points
• Self-employment tax is 15.3% on net earnings, while those who are employed pay half that amount and their employers contribute the other half.
• Self-employment tax is divided into 12.4% for Social Security and 2.9% for Medicare.
• Individuals with net earnings of $400 or more must pay self-employment tax.
• For a net income of $100,000, the self-employment tax is $14,129.55, with half of that amount deductible from your adjusted gross income.
• Quarterly estimated payments are necessary to avoid underpayment penalties and additional taxes.
What Is Self-Employment Tax?
Self-employment tax is the income tax you pay on net earnings, as mandated by the Self-Employment Contributions Act (SECA). The IRS determines who must pay self-employment tax.
SECA taxes help to fund Social Security and Medicare benefit programs for people who are elderly, retired, or disabled, as well as their eligible dependents. That’s the same as Federal Insurance Contributions Act (FICA) taxes, which are part of your income tax withholding if you work for an employer.
Self-employment tax exists to ensure that people who work for themselves pay their share of federal income tax. It’s important to understand how much you’re making and what tax bracket you’re in, and to report your self-employment income accurately, because what you earn influences what you’ll be able to collect from Social Security when you retire.
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How Much Is Self-Employment Tax?
The Internal Revenue Service sets the self-employment tax rate at 15.3%. There are two parts to the tax:
• 12.4% for Social Security, which is also referred to as Old-Age, Survivors, and Disability Insurance (OASDI)
• 2.9% for Medicare
The amount you pay in self-employment tax depends on how much you earn from self-employment for the year and what you deduct. It doesn’t matter what profession you are pursuing, whether you’re an actor or a nature photographer (which can be a good job for introverts).
What is the amount of the self-employment tax (SECA), and how does it compare to FICA taxes? The tax rates are the same. What’s different is how they’re paid.
• If you’re self-employed, you’re responsible for calculating and paying all SECA taxes.
• If you work for someone else, your employer determines how much to withhold from your checks each pay period.
Employers cover half of the tax for their employees. So, instead of paying 15.3% yourself, you’d pay 6.2% for OASDI (Social Security) taxes and 1.45% for Medicare tax, while your employer pays the rest.4 However, you as a self-employed individual may deduct the other half of this payment (the portion an employer would pay) on your tax return when calculating your adjusted gross income.
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Who Has to Pay Self-Employment Tax?
The IRS requires you to pay self-employment tax if either of the following is true:
• Your net earnings from self-employment are $400 or more
• You had church employee income of $108.28 or more
Those rules apply to sole proprietors, independent contractors, partners, and single-member limited liability corporations (LLCs).
Net earnings are the part of your gross income you keep after subtracting “ordinary and necessary” trade or business expenses. If you’re self-employed as a sole proprietor or independent contractor, you use Schedule C to calculate your net earnings from self-employment. Self-employment tax is reported on Schedule SE of your Form 1040.
There’s no age exemption for self-employment tax; if you owe it, you’ll need to pay it even if you already receive Social Security benefits.
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Self-Employment Tax Rate for 2024 and 2025
If you’re preparing for tax season, it helps to know if there are any updates to tax rates. The self-employment tax rate for 2024 is 15.3%; it’s the same for 2025. So for returns you file in 2025 and 2026, you’ll calculate self-employment tax as 15.3% of net earnings.
What’s different for each tax year is the amount of your net earnings that are subject to Social Security tax. This is called the wage base limit.
• For 2024, the wage base limit for the Social Security portion of self-employment tax is $168,600.1
• For 2025, the wage base limit increases to $176,100.
How much is self-employment tax, in terms of your total income? According to the IRS, the amount of net earnings subject to self-employment tax is 92.35%. All your net earnings are subject to the Medicare tax.
Certain self-employed individuals are subject to an additional Medicare tax of 0.9%. This tax applies if your income is above a certain threshold for your filing status. Here are the current thresholds for both 2024 and 2025.
| Filing status | Threshold amount |
|---|---|
| Married filing jointly | $250,000 |
| Married filing separate | $125,000 |
| Single | $200,000 |
| Head of household (with qualifying person) | $200,000 |
| Qualifying surviving spouse with dependent child | $200,000 |
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How to Calculate Self-Employment Tax
A self-employment tax calculator (options are available online) can help you estimate what you’ll owe, and using an online budget planner can help you monitor your money year-round.
That said, you don’t always have to rely on tech. It’s possible to do the calculations yourself. Here’s how to calculate self-employment tax in a few simple steps.
1. Calculate your net earnings from self-employment, which again is the difference between your gross income and deductible expenses.
2. Multiply your net earnings by 92.35%.
3. If the amount is less than $168,100, multiply it by 12.4% to calculate your Social Security tax. Otherwise, multiply $168,100 by 12.4%.
4. Multiply the amount you got in step two by 2.9% to calculate your Medicare tax.
You should now have two amounts. The final step is to add them together.
Example Self-Employment Tax Calculation
If you’re new to self-employment tax (and possibly paying taxes for the first time as well), it can help to have an example to follow of how to calculate what you owe.
Say you start an e-commerce store. You bring in $110,000 in gross income and have $10,000 in home office expenses, leaving you with $100,000 in net earnings. Now you can do the math.
• $100,000 x 92.35% = $92,350
• $92,350 x 12.4% = $11,451.40
• $100,000 x 2.9% = $2,678.15
• $11,451.40 + $2,678.15 = $14,129.55 in self-employment tax
You can deduct one-half of what you pay in self-employment tax. Deductions reduce your taxable income for the year, which can help you to owe less or get a bigger refund.
How to Pay Self-Employment Tax
Self-employment tax is typically paid in four installments, called quarterly estimated payments. These payments reflect the amount you estimate you’ll owe in taxes based on your expected net earnings.
Quarterly payments are typically due:
• April 15 for income earned from January 1 to March 31
• June 15 for income earned from April 1 to May 31
• September 15 for income earned from June 1 to August 31
• January 15 of the following year for income earned from September 1 to December 31
Making quarterly payments doesn’t mean you don’t have to file a federal income tax return. You don’t want to miss your tax filing deadlines for those quarterly payments, but you’ll still need to hit the annual tax filing deadline, which is usually April 15.
If you’ve underpaid your estimated taxes, you may owe when you file. The IRS could also impose an underpayment penalty if you owe more than $1,000. Underpayments and missed payments are two of the biggest tax filing mistakes to avoid when you’re self-employed.
Tax Deductions for Self-Employment
Claiming tax deductions can shrink your taxable income. Some deductions are designed for people who are self-employed or run businesses, while other deductions are available to anyone who qualifies.
Examples of self-employed deductions include:
• Half of the self-employment tax you paid, as noted above
• Contributions to a self-employed retirement plan, such as a solo 401(k) or SEP IRA
• Contributions to a traditional IRA
• Health Savings Account (HSA) contributions (if you have a high deductible health plan)
• Health insurance premiums
• Home office expenses (an online money tracker can help you keep tabs on these)
• Mileage and travel expenses, if that applies to the type of business you run
You may also be able to claim other deductions as well, based on how you file. For example, a sole proprietor can write off mortgage interest, student loan interest, and charitable contributions alongside business expenses.
Worth noting: If you’re filing taxes on investment income, you can also deduct expenses related to maintaining the property.
The Takeaway
Self-employment tax refers to the Social Security and Medicare taxes that earners who are not employees must pay. Typically, employers pay half this amount, but the self-employed must pay the full 15.3% amount and can then deduct half when doing their taxes. Understanding how and when self-employment taxes are due can play an important role in tracking and managing your money well.
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FAQ
Why do I have to pay self-employment tax?
You have to pay self-employment tax because that is the law. Paying self-employment tax isn’t that different from the tax withholding your employer would take from your check if you had a regular 9 to 5 job.
What is 30% tax for self-employed?
The 30% rule of thumb for self-employed taxpayers suggests holding back 30% of your gross income to cover your tax obligations. The idea is that by setting aside this much, you should be able to comfortably cover your self-employment tax obligations.
What is the 20% self-employment deduction?
Some self-employed individuals may be able to take advantage of the Qualified Business Income (QBI) deduction. This deduction allows you to write off up to 20% of your QBI, plus 20% of any qualified real estate investment trust (REIT) dividends you receive. This deduction is only available, however, to businesses in certain trades and industries.
How do I get the biggest tax refund when self-employed?
Getting a tax refund means that you’ve paid in more tax than you owe. The simplest way to increase your refund size is to maximize your deductions. Maxing out a tax-advantaged retirement plan, itemizing every eligible business expense, and deducting other expenses, like charitable contributions or mortgage interest, could help you snag a bigger refund.
How much can an LLC write off?
Technically, there’s no limit on the dollar amount an LLC, or limited liability company, can write off. However, each expense you deduct must be legitimate and reflect the amount you actually spent. It’s wise to keep a paper or digital trail to document your deductible business expenses, just in case the IRS comes knocking with an audit.
What happens if my LLC makes no money?
If your only source of income is an LLC and you make no money, then you wouldn’t owe any taxes since there are no net earnings to report. You would, however, still need to file your return and document any net operating losses. A net operating loss happens when your business spends more than it brings in.
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