Self-Employment Tax: What Freelancers Need to Know
Understand the 15.3% self-employment tax rate, how to calculate your liability, and strategies to reduce what you owe as an independent worker.
Self-employment tax is the Social Security and Medicare tax that self-employed individuals pay on their net earnings from self-employment. When you work for an employer, these payroll taxes are split equally between you and your employer. When you work for yourself, you are responsible for both halves, which is why the combined rate is 15.3% rather than the 7.65% employees see withheld from their paychecks.
This tax applies to anyone who earns $400 or more in net self-employment income during the year. This includes freelancers, independent contractors, gig workers, sole proprietors, and members of partnerships. The tax is calculated on Schedule SE and reported on your Form 1040. It is separate from and in addition to federal income tax on your earnings.
The self-employment tax can come as a significant surprise to new freelancers and gig workers who are accustomed to having payroll taxes handled by an employer. Proper planning, including making estimated quarterly tax payments and understanding available deductions, is essential to avoiding underpayment penalties and managing cash flow effectively.
How It Works
Self-employment tax is calculated on 92.35% of your net self-employment earnings, not the full amount. This adjustment accounts for the employer-equivalent portion of the tax. Your net self-employment income is your gross self-employment income minus allowable business deductions reported on Schedule C (or Schedule F for farmers).
The 15.3% rate breaks down into two components: 12.4% for Social Security and 2.9% for Medicare. The Social Security portion applies only to earnings up to the Social Security wage base, which is $176,100 for 2025. All net self-employment earnings are subject to the 2.9% Medicare tax with no cap. Additionally, a 0.9% Additional Medicare Tax applies to self-employment income exceeding $200,000 for single filers or $250,000 for married filing jointly.
You can deduct the employer-equivalent portion of your self-employment tax (half of what you pay) as an above-the-line deduction on your Form 1040. This reduces your adjusted gross income and therefore your income tax, but it does not reduce your self-employment tax itself. If you expect to owe $1,000 or more in combined income and self-employment tax, you are required to make estimated quarterly payments using Form 1040-ES.
Current Rates
| Bracket / Category | Rate | Applies To |
|---|---|---|
| Social Security | 12.4% | Net SE earnings up to $176,100 (2025 wage base) |
| Medicare | 2.9% | All net SE earnings (no cap) |
| Combined SE Tax | 15.3% | On 92.35% of net SE earnings |
| Additional Medicare Tax | 0.9% | SE income over $200,000 (single) / $250,000 (MFJ) |
| Effective Maximum SE Tax | $27,089 | Maximum Social Security + uncapped Medicare for 2025 |
Key Forms
Calculate self-employment tax owed
Report profit or loss from sole proprietorship
Calculate and pay estimated quarterly taxes
Report nonemployee compensation received ($600+)
Report payment card and third-party network transactions
Deductions & Credits
Deductible Half of SE Tax
Deduct the employer-equivalent portion (50%) of self-employment tax as an above-the-line adjustment to income on Form 1040.
Qualified Business Income (QBI) Deduction
Deduct up to 20% of qualified business income under Section 199A, subject to income thresholds and business type limitations.
Home Office Deduction
Deduct expenses for the portion of your home used regularly and exclusively for business, using simplified ($5/sq ft, max $1,500) or regular method.
Health Insurance Deduction
Self-employed individuals can deduct 100% of health insurance premiums for themselves, spouse, and dependents as an above-the-line deduction.
Retirement Plan Contributions
Contributions to SEP-IRA (up to 25% of net SE earnings, max $70,000), Solo 401(k), or SIMPLE IRA reduce taxable income.
Business Expense Deductions
All ordinary and necessary business expenses including supplies, software, travel, vehicle use, and professional services reduce net SE income.
Filing Tips
- Set aside 25-30% of each payment you receive to cover both income tax and self-employment tax obligations.
- Make estimated quarterly payments by the deadlines (April 15, June 15, September 15, January 15) to avoid underpayment penalties.
- Track all business expenses meticulously throughout the year using accounting software or a dedicated spreadsheet.
- Consider forming an S-Corporation if your net SE income consistently exceeds $50,000-$60,000 to potentially reduce SE tax through salary/distribution splitting.
- Open a SEP-IRA or Solo 401(k) to reduce taxable income while building retirement savings.
- Keep business and personal finances completely separate with a dedicated business bank account and credit card.
Frequently Asked Questions
Do I have to pay self-employment tax on all my freelance income?
Can I avoid self-employment tax by forming an LLC?
What are the estimated quarterly tax payment deadlines?
Is self-employment tax the same as income tax?
How does self-employment tax affect my Social Security benefits?
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