Self-employment tax: Ultimate guide for solopreneurs and freelancers

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.

How self-employment tax works 

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: 

• Sole proprietors
• Freelancers 
• Independent contractors
• Owner of a single-member LLC
• Consultants 
• Gig workers 

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 rates and eligibility

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.

Tax deductions for self-employment

Self-employed individuals can use self-employed tax deductions to reduce the amount of tax they owe. Self-employed individuals should be sure to stay informed about tax changes, such as new deductions for tips and overtime pay in 2025, as these can significantly affect their filing requirements. 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.

Calculating self-employment tax

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:

• Self-employment net earnings x 92.35% x self-employment tax rate (15.3%)

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:

1. Total your self-employment income: Add up the total amount of money you make from self-employment, including the income from your 1099 forms.
2. Get your net earnings from self-employment: Tally up all of your business expenses and deductions and subtract them from your total self-employment income. 
3. Figure your self-employment tax base: Multiply your net earnings from self-employment by 92.35%. 
4. Calculate your self-employment tax: You will use the self-employment tax rate of 15.3%. 

Using a self-employment calculator is an easy way to estimate the amount of self-employment tax you’ll need to pay.

Self-employment tax calculation example

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:

• You add up all of your 1099 income to see your total self-employment income is $300,000. 
• You subtract business expenses to find your net self-employment earnings, which is $280,000 after accounting for deductions and tax breaks. 
• You find your self-employment tax base as $258,580 ($280,000 x 92.35%). 
• You calculate your self-employment tax as $28,405.22, which includes $20,906.40 for your Social Security tax ($168,600 x 12.4%) and $7,498.82 for Medicare tax (258,580 x 2.9%).

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: 

• Retirement: You can deduct contributions you make to certain retirement plans, such as a solo 401(k). 
• Self-employment tax: You can deduct half of your self-employment tax from your net income. 
• Vehicle use: If you use your vehicle for business purposes, you can deduct expenses or use the IRS standard mileage deduction. 
• Home office: If you use a space in your home to run your business, you can use the IRS simplified square footage calculator or deduct expenses.
• Health insurance: You can deduct the cost of paying your health insurance premiums for you and your family. 
• Travel and other business expenses: You can deduct your travel if you have to visit clients as well as other expenses like advertising.

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.

Quarterly tax payments and filing requirements

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: 

• January 15 for fourth-quarter earnings from 9/1 to 12/31
• April 15 for first-quarter earnings from 1/1 to 3/31
• June 15 for the second-quarter earnings from 4/1 to 5/31
• September 15 for third-quarter earnings from 6/1 to 8/31

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.

Find peace of mind come tax time

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.

Disclaimer:

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