What is self-employment tax? A tax that self-employed individuals have to pay to cover Social Security and Medicare taxes. If you earn income that is not subject to payroll withholding, you likely need to pay self-employment tax.
As a self-employed individual, understanding and managing your own taxes is important. Self-employment taxes can be complex, but with the right knowledge, you can ensure you're paying the correct amount and maximizing your deductions.
Let’s look at the basics of self-employment taxes, including how to calculate them, the rates involved, and important deadlines.
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Self-employment tax is a 15.3% tax that covers Social Security and Medicare contributions for self-employed individuals. Individuals who work for themselves and make more than $400 in net earnings from self-employment must pay self-employment taxes.
Self-employment income can include money you make from contract work, freelancing, or selling products online.
Typical individuals that need to pay self-employment tax include:
If you are an employee, Social Security and Medicare taxes are known as FICA taxes, and your employer pays half of your Social Security and Medicare taxes—you pay the other half through payroll deductions. However, you are responsible for paying the full amount for self-employment income.
Self-employment tax is in addition to income tax—you’re responsible for paying both self-employment tax and income tax on your earnings.
The current self-employment tax rate is 15.3%, which includes 12.4% for Social Security taxes and 2.9% for Medicare taxes. You only have to pay Social Security taxes on income up to $168,600 for 2024 ($176,100 for 2025), but there is no income limit for Medicare taxes.
Note that many members of limited liability companies (LLC) must also pay self-employment tax, as well as church employees with income over $108.28.
Self-employed individuals can use self-employed tax deductions to reduce the amount of tax they owe. Self-employed tax deductions can include expenses you incur while running your business, as well as the Qualified Business Income deduction, which allows you to deduct up to 20% of your business income.
Note that an Additional Medicare Tax of 0.9% applies to household income over certain thresholds. You’ll pay this additional tax if you earn over $200,000 as a single filer, $250,000 for married filing jointly, or $125,000 for married filing separately.
This additional tax is not part of your self-employment taxes—you’ll calculate and pay this with your income tax return.
You calculate and pay self-employment tax using your self-employment tax base. You’ll need to know your self-employment net earnings, also known as net income, which is the total amount of money you make from self-employed work minus your business expenses.
Your self-employment tax base is then 92.35% of your net earnings from self-employment.
The self-employment tax formula is:
Before calculating your self-employment tax, you’ll need to gather key tax and business documents, such as 1099-NEC forms, bank records, and receipts.
Here’s how to calculate your self-employment tax:
Using a self-employment calculator is an easy way to estimate the amount of self-employment tax you’ll need to pay.
Say you’re a self-employed individual who’s a single filer, and you need to figure out how much self-employment tax you owe.
Here’s an example of calculating self-employment tax:
Note that you also owe an Additional Medicare Tax of 0.9% since you make over $200,000 as a single filer.
Major deductions self-employed individuals should consider:
When looking to lower your tax bill by deducting expenses, you’ll want to keep solid records and consider using accounting software to help make tax time easier.
Expenses that relate to your business, such as vehicle use, home office, and other business expenses, reduce both your self-employment tax and your income tax. Deductions for retirement, health insurance and self-employment tax reduce only your income tax.
If you expect to owe over $1,000 in taxes when you file your income tax return with the IRS, you likely need to make estimated tax payments quarterly.
Quarterly estimated taxes are due:
For example, you can use the self-employment tax calculator above to estimate how much you expect to owe in self-employment tax for the current year. If it’s over $1,000, you’ll want to divide that by the number of remaining quarterly due dates for the tax year.
A self-employment tax calculator is an easy way to stay on top of your self-employed tax obligations. However, receiving multiple 1099 forms or both 1099 and W-2 income paying self-employment taxes can be even more tricky.
You can use accounting software built for self-employed individuals like QuickBooks Solopreneur to accurately calculate all your tax obligations and ensure you don’t miss any tax deadlines.
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