Introduction
Self-employment offers freedom and flexibility, but it also comes with unique tax responsibilities. This guide covers everything you need to know about self-employment taxes in the United States.
What is Self-Employment Tax?
Self-employment tax consists of Social Security and Medicare taxes for individuals who work for themselves.
2025 Rates:
- Social Security: 12.4% (on first $168,600 of net earnings)
- Medicare: 2.9% (on all net earnings)
- Additional Medicare: 0.9% (on earnings over $200,000 single / $250,000 married)
Note: As a W-2 employee, your employer pays half of these taxes. As self-employed, you pay both halves but you can deduct the employer portion!
Who Must Pay Self-Employment Tax?
You must pay SE tax if your net self-employment earnings are $400 or more.
Common self-employed individuals include:
- Freelancers and consultants
- Gig economy workers (Uber, DoorDash, etc.)
- Independent contractors
- Sole proprietors
- Partners in partnerships
Calculating Your Self-Employment Tax
Step-by-Step Calculation:
- Calculate Net Earnings: Gross Income - Business Expenses = Net Profit
- Calculate SE Tax Base: Net Profit x 92.35% = SE Tax Base
- Calculate SE Tax: SE Tax Base x 15.3% = Self-Employment Tax
- Deduct Employer Portion: SE Tax x 50% = Deductible Amount
Example Calculation:
| Item | Amount |
|---|---|
| Gross Income | $100,000 |
| Business Expenses | $25,000 |
| Net Profit | $75,000 |
| SE Tax Base (x 92.35%) | $69,262 |
| SE Tax (x 15.3%) | $10,597 |
| Deductible Portion | $5,298 |
Quarterly Estimated Taxes
Self-employed individuals must pay estimated taxes quarterly if they expect to owe $1,000 or more.
2025 Due Dates:
- Q1: April 15, 2025
- Q2: June 16, 2025
- Q3: September 15, 2025
- Q4: January 15, 2026
How Much to Pay:
Use Form 1040-ES to calculate payments. The safe harbor rule:
- Pay 100% of last year tax liability, OR
- Pay 90% of current year tax liability
Essential Deductions for Self-Employed
Home Office Deduction
- Simplified: $5/sq ft (max 300 sq ft = $1,500)
- Regular: Actual expenses x business use percentage
Health Insurance Premium
- 100% deductible for self, spouse, and dependents
- Cannot exceed net self-employment income
Retirement Contributions
- SEP-IRA: Up to 25% of net SE income (max $69,000)
- Solo 401(k): Up to $23,000 employee + 25% employer
Other Common Deductions:
- Business equipment and supplies
- Professional development
- Marketing and advertising
- Travel and vehicle expenses
- Professional services (legal, accounting)
- Software and subscriptions
Record Keeping Best Practices
Maintain organized records throughout the year:
- Separate bank accounts for business and personal
- Track all income including 1099s and cash payments
- Save receipts for all business expenses
- Log mileage for business vehicle use
- Document home office measurements and expenses
Forms You Will Need
- Schedule C: Business profit or loss
- Schedule SE: Self-employment tax calculation
- Form 1040-ES: Quarterly estimated tax payments
- Form 8829: Home office deduction (optional)
Get Professional Help
Self-employment taxes can be complex. Tax Genius LLC specializes in helping freelancers and self-employed individuals minimize their tax burden while staying compliant.