Self-Employment Tax 2025: The Complete Guide

You made $100,000 freelancing. Congrats!

Your self-employment tax bill: $15,300.

Wait, what?

If you're self-employed, you pay both the employee AND employer portions of Social Security and Medicare taxes. That's 15.3% off the top, before income tax even starts.

This guide explains everything you need to know about self-employment tax, how to calculate it, when to pay it, and how to reduce it.

Calculate your self-employment taxes →

What is Self-Employment Tax?

The Basics

Self-employment (SE) tax is Social Security and Medicare tax for self-employed individuals.

Who pays it:

• Freelancers
• Independent contractors
• Sole proprietors
• LLC members (single-member or multi-member)
• General partners in partnerships
• Anyone receiving 1099-NEC or 1099-K income

Who doesn't pay it:

• W-2 employees (they pay FICA instead)
• S-Corp owners on their salary (they pay FICA on wages, SE tax on distributions)

The Rate

Self-employment tax rate: 15.3%

Breakdown:

• Social Security: 12.4%
• Medicare: 2.9%

Why so high?

As a W-2 employee:

• You pay 7.65% (SS 6.2% + Medicare 1.45%)
• Employer pays 7.65%
• Total: 15.3%

As self-employed:

• You pay ALL 15.3% (both portions)

The good news: You can deduct half (employer portion) as a business expense.

How It's Different from Income Tax

Self-employment tax:

• Flat 15.3% on net earnings
• Goes to Social Security and Medicare
• Everyone pays the same rate (up to SS wage base)

Income tax:

• Progressive rates (10% to 37%)
• Goes to general government revenue
• Rate depends on total income

You pay BOTH:

Example: $100,000 net self-employment income

• SE tax: ~$15,300 (15.3%)
• Federal income tax: ~$14,000 (after deductions)
• State tax (varies): ~$5,000 (example)
• Total tax: ~$34,300 (34.3%)

How to Calculate Self-Employment Tax

Step 1: Calculate Net Self-Employment Income

Start with gross income:

• All 1099-NEC income
• All 1099-K income
• All cash/check payments
• All business revenue

Subtract business expenses:

• Home office
• Equipment and supplies
• Software subscriptions
• Mileage/travel
• Professional development
• Marketing/advertising
• Contract labor
• Everything ordinary and necessary for your business

= Net Profit (Schedule C)

Step 2: Apply the 92.35% Rule

You don't pay SE tax on 100% of net profit.

You pay on 92.35% of net profit.

Why?

• W-2 employees don't pay FICA on employer's portion
• To equalize, self-employed get 7.65% deduction
• 100% - 7.65% = 92.35%

Example:

• Net profit: $100,000
• SE taxable income: $100,000 × 92.35% = $92,350

Step 3: Calculate SE Tax

On the first $168,600 (2025):

• SE tax: $92,350 × 15.3% = $14,130

If you earn over $168,600:

• First $168,600: 15.3%
• Amount over $168,600: 2.9% (Medicare only, no SS)

Example (high earner):

• Net profit: $250,000
• SE income: $250,000 × 92.35% = $230,875
• First $168,600: $168,600 × 15.3% = $25,796
• Remaining: $62,275 × 2.9% = $1,806
• Total SE tax: $27,602

Step 4: Deduct Half of SE Tax

You can deduct the "employer" half:

• Total SE tax: $14,130
• Deductible amount: $14,130 ÷ 2 = $7,065
• This reduces your income tax (but not your SE tax)

On your tax return:

• Schedule C: $100,000 net profit
• Schedule SE: $14,130 SE tax
• Form 1040: Deduct $7,065 for employer portion
• Taxable income: $92,935 (instead of $100,000)

Self-Employment Tax Brackets

There's only one "bracket" (it's flat):

Net Earnings	SE Tax Rate	Notes
$0 - $168,600	15.3%	Full SS + Medicare
$168,601+	2.9%	Medicare only (no SS)

Plus Additional Medicare Tax:

Income (Single)	Additional Tax
$0 - $200,000	0%
$200,001+	+0.9%

Example earnings with SE tax:

Net Profit	SE Tax	Effective Rate
$25,000	$3,532	14.1%
$50,000	$7,065	14.1%
$100,000	$14,130	14.1%
$168,600	$23,772	14.1%
$200,000	$25,796 + $907	13.4%
$300,000	$25,796 + $3,807	9.9%
$500,000	$25,796 + $9,612	7.1%

Key insight: SE tax as % of income DECREASES as you earn more (because SS caps at $168,600).

Calculate your exact SE tax →

When to Pay Self-Employment Tax

Quarterly Estimated Taxes

You can't wait until April 15th.

If you owe $1,000+ in taxes:

• Must make quarterly estimated payments
• Covers both SE tax AND income tax
• Pay IRS directly

2025 Quarterly Due Dates:

Quarter	Income Period	Due Date
Q1	Jan 1 - Mar 31	April 15, 2025
Q2	Apr 1 - May 31	June 16, 2025
Q3	Jun 1 - Aug 31	Sept 15, 2025
Q4	Sep 1 - Dec 31	Jan 15, 2026

How much to pay:

• Calculate expected annual net profit
• Calculate SE tax + income tax
• Divide by 4
• Pay each quarter

Example:

• Expected net profit: $100,000
• Expected SE tax: $14,130
• Expected income tax: $14,000
• Total: $28,130
• Quarterly payment: $7,033

Penalty for not paying:

• IRS charges underpayment penalty (~5-7% annual rate)
• Calculated per quarter
• Even if you get a refund in April, penalty applies if quarterly was too low

How to Pay

1. IRS Direct Pay (free):

• https://www.irs.gov/payments/direct-pay
• Direct from bank account
• Get instant confirmation

2. EFTPS (Electronic Federal Tax Payment System):

• https://www.eftps.gov
• Free government system
• Must enroll first (takes 5-7 days)
• Schedule payments in advance

3. IRS2Go Mobile App:

• Free app
• Pay from phone
• Track refund status

4. Credit/Debit Card (fees apply):

• ~2% processing fee
• Only worth it if getting rewards points

5. Mail a Check:

• Use Form 1040-ES payment voucher
• Mail to IRS (address based on state)
• Allow 2 weeks for processing

Pro tip: Set up EFTPS and schedule all 4 quarterly payments on January 1st. Set it and forget it.

Self-Employment Tax vs W-2 FICA

Comparison

W-2 Employee ($100,000 salary):

• Employee FICA: $7,650
• Employer FICA: $7,650 (employer pays)
• Employee's cost: $7,650

Self-Employed ($100,000 net profit):

• Self-employment tax: $14,130
• Can deduct half: -$7,065 (reduces income tax by ~$1,600)
• Net cost: ~$12,500

Self-employed pays ~$4,850 more in SE/FICA taxes.

When to Choose W-2 vs 1099

W-2 Advantages:

• Employer pays half of FICA ✓
• Employer may offer benefits (health, 401k match) ✓
• Unemployment insurance ✓
• Workers comp ✓
• Easier to get loans/mortgages ✓

1099 Advantages:

• Tax deductions for business expenses ✓
• Home office deduction ✓
• More flexibility ✓
• Can earn more (if you negotiate higher rate) ✓
• Multiple clients/income streams ✓

Break-even calculation:

If offered $100K W-2 vs 1099:

• W-2 take-home: ~$70,000
• 1099 take-home: ~$65,500 (if same rate)
• You need ~$110K 1099 to match $100K W-2

Factors to consider:

• Health insurance (W-2 may save $500-1,000/month)
• 401(k) match (W-2 may add 3-6% of salary)
• PTO/sick days (W-2 may be worth 10% of salary)

How to Reduce Self-Employment Tax

Strategy 1: Maximize Business Deductions

Every deduction reduces net profit → reduces SE tax

Top deductions:

Home office:

• Simplified: $5/sq ft up to 300 sq ft (max $1,500)
• Actual: % of rent, utilities, insurance, repairs

Vehicle:

• Standard mileage: 67¢/mile (2025)
• Actual: Gas, insurance, repairs, depreciation × business %

Equipment:

• Computers, monitors, desk, chair
• Camera, lighting (video creators)
• Tools, machinery (contractors)
• Section 179: Deduct full cost in year 1 (up to $1,220,000)

Software/Subscriptions:

• Adobe Creative Cloud
• Microsoft Office
• Project management tools
• Accounting software
• Website hosting

Professional development:

• Courses, certifications
• Books, conferences
• Coaching, mentorship

Marketing:

• Website development
• Advertising (Google, Facebook, etc.)
• Business cards, branding
• SEO, content marketing

Contractors/outsourcing:

• Virtual assistant
• Bookkeeper
• Web developer
• Graphic designer

Travel:

• Airfare, hotels (business trips)
• Meals (50% deductible)
• Conference registration

Example:

• Gross income: $120,000
• Business expenses: $20,000
• Net profit: $100,000
• SE tax: $14,130

With more deductions:

• Gross income: $120,000
• Business expenses: $30,000
• Net profit: $90,000
• SE tax: $12,717
• Savings: $1,413

Strategy 2: Set Up an S-Corp

The S-Corp strategy:

• Pay yourself a "reasonable salary" (W-2)
• Take remaining profit as "distributions"
• Distributions are NOT subject to SE tax ✓

Example:

As sole proprietor:

• Net profit: $150,000
• SE tax: $21,195 (15.3% on first $138,600, then 2.9%)

As S-Corp:

• Pay yourself salary: $80,000
• FICA on salary: $6,120 (employee portion)
• Employer FICA: $6,120 (S-Corp pays)
• Total FICA: $12,240
• Take distributions: $70,000 (no SE tax!)
• Total tax: $12,240
• Savings: ~$9,000/year

When it makes sense:

• Net profit over $60,000-80,000
• Stable income (not wildly variable)
• Worth the administrative costs

Costs:

• Accountant/tax prep: $1,500-3,000/year
• Payroll service: $500-1,000/year
• State fees: $100-800/year
• Total: ~$2,100-4,800/year

ROI:

• Profit $100K: Save ~$5,000 - costs $3,000 = $2,000 net benefit
• Profit $150K: Save ~$9,000 - costs $3,000 = $6,000 net benefit
• Profit $200K: Save ~$13,000 - costs $3,000 = $10,000 net benefit

Warning: Salary must be "reasonable" for your industry/role. Can't pay yourself $20K and take $180K distribution. IRS will reclassify.

Strategy 3: Qualified Business Income (QBI) Deduction

What it is: Deduct 20% of qualified business income (reduces income tax, not SE tax)

Who qualifies:

• Sole proprietors
• S-Corp owners
• LLC members
• Partnerships

Limits:

• Full deduction if income under $191,950 (single) or $383,900 (married)
• Phases out for "specified service businesses" (consultants, lawyers, doctors, etc.)
• Still get partial deduction if non-specified business

Example:

• Net profit: $100,000
• SE tax deduction: $7,065
• Adjusted income: $92,935
• QBI deduction: $92,935 × 20% = $18,587
• Taxable income: $74,348 (instead of $92,935)
• Income tax savings: ~$4,500

This doesn't reduce SE tax, but reduces income tax significantly.

Strategy 4: Contribute to Retirement Accounts

Self-employed retirement options:

Solo 401(k):

• Employee contribution: $23,000 (2025)
• Employer contribution: Up to 25% of net self-employment income
• Total limit: $69,000 (or $76,500 age 50+)

SEP IRA:

• Contribute up to 25% of net self-employment income
• Limit: $69,000 (2025)
• Easier admin than Solo 401(k)

SIMPLE IRA:

• Employee contribution: $16,000 (2025)
• Employer match: 3% or 2% non-elective
• For businesses with employees

Example (Solo 401k):

• Net profit: $150,000
• Employee contribution: $23,000
• Employer contribution: $27,388 (calculation based on adjusted net)
• Total contribution: $50,388
• Tax savings: ~$12,000-15,000

Benefit: Reduces taxable income (saves income tax), builds retirement wealth.

Strategy 5: Hire Family Members

Hire your kids:

• Pay them for legitimate work (social media, data entry, filing)
• They file their own return
• First $14,600 (2025 standard deduction) is tax-free to them
• You deduct their wages as business expense
• If under 18: No SE tax or FICA (if sole prop or partnership with only you/spouse)

Example:

• Pay your 16-year-old $10,000/year
• You save: $10,000 × (15.3% SE + 22% income) = $3,730
• They pay: $0 (under standard deduction)
• Net family savings: $3,730

Requirements:

• Actual work performed
• Reasonable pay for the work
• Keep records (timesheets, job description)
• Issue W-2 (or 1099-NEC if over 18 and not employee)

Hire your spouse:

• Deduct their salary
• They reduce your SE tax base
• Can cover them under health insurance (deductible)

State Self-Employment Taxes

Most states don't have separate SE tax.

But you pay state income tax on net profit:

No state income tax (best for self-employed):

• Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, Wyoming

Low state tax:

• North Dakota: 2.9%
• Indiana: 3.05%
• Pennsylvania: 3.07%
• Arizona: 2.5%

High state tax:

• California: up to 13.3%
• Hawaii: up to 11%
• New York: up to 10.9%
• New Jersey: up to 10.75%

Example:

• Net profit: $100,000
• Federal SE tax: $14,130
• Federal income tax: $14,000
• CA state tax: $5,000
• Total: $33,130 (33.1%)

vs

• Net profit: $100,000
• Federal SE tax: $14,130
• Federal income tax: $14,000
• TX state tax: $0
• Total: $28,130 (28.1%)

Moving from CA to TX saves $5,000/year on same income.

Compare states for self-employment income →

Self-Employment Tax Forms and Filing

Forms You'll File

Schedule C (Form 1040):

• Report business income and expenses
• Calculate net profit
• One Schedule C per business

Schedule SE (Form 1040):

• Calculate self-employment tax
• Based on Schedule C net profit

Form 1040:

• Your main individual tax return
• Includes Schedule C and SE
• Reports deduction for half of SE tax

Form 1040-ES:

• Estimated tax payment vouchers
• Use to calculate and pay quarterly
• Only if mailing checks

State return:

• Report same income to state
• Calculate state tax

What You'll Need

Income documentation:

• All 1099-NEC forms
• All 1099-K forms
• Cash/check payment records
• PayPal, Venmo, Stripe statements

Expense documentation:

• Receipts for deductible expenses
• Mileage log
• Home office calculation
• Bank statements
• Credit card statements

Prior year return:

• For carryovers, comparisons

Common Self-Employment Tax Mistakes

Mistake 1: Not Paying Quarterly

The problem:

• Wait until April to pay
• Owe $20,000+
• Plus underpayment penalty
• Scramble to find the money

The fix:

• Set aside 30-35% of each payment
• Pay quarterly
• Use EFTPS to automate

Mistake 2: Forgetting the 92.35% Rule

The problem:

• Calculate SE tax on 100% of net profit
• Overpay by ~$750 per $100K income

The fix:

• Use correct formula: Net profit × 92.35% × 15.3%
• Or use IRS Schedule SE

Mistake 3: Not Deducting Half of SE Tax

The problem:

• Pay SE tax
• Forget to deduct half on Form 1040
• Pay income tax on the deductible portion
• Overpay by ~$1,500-2,500

The fix:

• Form 1040 Line 15: Deduct half of SE tax
• Reduces AGI
• Reduces income tax

Mistake 4: Missing Deductions

The problem:

• Don't track expenses
• Miss home office, mileage, equipment
• Overpay SE tax by thousands

The fix:

• Use accounting software (QuickBooks, FreshBooks, Wave)
• Track every business expense
• Take photos of receipts
• Review common deductions quarterly

Mistake 5: Not Setting Up S-Corp When Profitable

The problem:

• Make $150K+ as sole prop
• Pay $21,000+ in SE tax
• Could save $8,000-12,000/year with S-Corp

The fix:

• Consult CPA when net profit hits $60K-80K
• Analyze S-Corp savings vs costs
• Set up if beneficial

Tools and Resources

Tax Calculators

Self-employment tax calculator:

• TakeHomeCompare Calculator - Calculate exact SE tax + income tax
• IRS Schedule SE - Official worksheet

Quarterly Tax Estimator

How much to pay quarterly:

• IRS Tax Withholding Estimator
• Include self-employment income
• Get quarterly payment amounts

Accounting Software

For tracking income/expenses:

• QuickBooks Self-Employed: $15/month, integrates with TurboTax
• FreshBooks: $17/month, invoicing + expense tracking
• Wave: Free, basic accounting
• Xero: $13/month, more robust features

Tax Software

For filing:

• TurboTax Self-Employed: Handles Schedule C, SE tax
• H&R Block Self-Employed: Similar features
• TaxAct Self-Employed: Budget option
• FreeTaxUSA: Cheapest option with Schedule C

Hiring a CPA

When to hire a pro:

• Net profit over $75,000
• Considering S-Corp election
• Multiple businesses or complex situation
• Want to maximize deductions
• Facing an audit

Cost:

• Basic self-employed return: $300-800
• With S-Corp: $1,000-2,500
• With multiple businesses/real estate: $2,000-5,000

Action Plan for Self-Employed

Step 1: Calculate Your Expected SE Tax

Estimate annual net profit:

• Estimate revenue
• Subtract estimated expenses
• = Net profit

Calculate SE tax:

• Net profit × 92.35% × 15.3%
• = Expected SE tax

Add income tax:

• Use our calculator or IRS estimator
• Get total tax obligation

Step 2: Set Up Payment System

Open a separate business account:

• Keep business separate from personal
• Makes tracking easier
• Looks more professional

Set aside taxes:

• 30-35% of every payment
• Move to separate savings account
• Don't touch until quarterly payment due

Set up EFTPS:

• Enroll at https://www.eftps.gov
• Schedule 4 quarterly payments
• Set calendar reminders

Step 3: Track Everything

Income:

• Log every payment
• Save 1099s
• Track cash/checks

Expenses:

• Save every receipt
• Use app to photo receipts (Expensify, Shoeboxed)
• Categorize monthly
• Review quarterly

Mileage:

• Use app (MileIQ, Stride, TripLog)
• Auto-track business drives
• Generate reports

Step 4: Maximize Deductions

Set up home office:

• Measure square footage
• Calculate % of home
• Track utilities, rent, insurance

Buy needed equipment:

• Use Section 179 to deduct in year 1
• Computer, software, tools
• Office furniture

Invest in business growth:

• Courses, coaching, conferences
• Marketing, advertising
• Contractor help

Step 5: Consider Advanced Strategies

At $60K-80K+ net profit:

• Consult with CPA about S-Corp
• Calculate savings vs costs
• Set up if beneficial

Max out retirement:

• Solo 401(k) or SEP IRA
• Reduce taxable income
• Build wealth

Hire family:

• If you have kids or spouse
• Pay for legitimate work
• Save SE tax and income tax

Conclusion

Key takeaways:

✅ SE tax rate: 15.3% (SS 12.4% + Medicare 2.9%)

✅ Who pays: Freelancers, contractors, sole proprietors, LLC members receiving 1099 income

✅ Wage base: $168,600 for Social Security (2025), unlimited for Medicare

✅ Quarterly payments: Required if owing $1,000+, due Apr 15, Jun 16, Sep 15, Jan 15

✅ Deductions: Half of SE tax is deductible, plus all business expenses

✅ S-Corp strategy: Can save $5,000-15,000/year if net profit over $80,000

✅ Best states: TX, FL, TN, NV, WA (no state income tax)

Self-employment tax is expensive - up to 15.3% before income tax even starts. But with proper planning, you can:

1. Maximize business deductions (reduce SE tax base)
2. Set up S-Corp (avoid SE tax on distributions)
3. Max retirement contributions (reduce income tax)
4. Move to no-tax state (eliminate state tax)

Over a career, these strategies can save $100,000-500,000+.

Next step: Use our calculator to see your exact self-employment tax and total tax obligation for your state and income level.

Remember: Self-employment gives you freedom and flexibility. The extra tax is the price of that freedom. But with smart tax planning, you can minimize it and keep more of what you earn.

Calculate your self-employment taxes now →