Self-Employment Tax Guide 2025
Everything freelancers, contractors, and small business owners need to know about SE tax
This guide explains self-employment tax in plain English. We cover the 15.3% SE tax rate, how to calculate it, deductible expenses, quarterly payment requirements, and retirement savings strategies that can reduce your tax burden.
How much is self-employment tax?
The self-employment tax rate is 15.3% on net earnings: 12.4% for Social Security (up to $176,100 in 2025) and 2.9% for Medicare (on all earnings). Above $200K single / $250K married, you also pay 0.9% Additional Medicare Tax. The good news: you can deduct half of your SE tax when calculating income tax.
- •15.3% total SE tax rate
- •Social Security caps at $176,100 (2025)
- •Deduct 50% of SE tax on Form 1040
Self-employment tax is the line on Schedule SE that catches every first-year freelancer off guard. You're paying both halves of Social Security and Medicare — 15.3% — on top of regular income tax. Half is deductible as an adjustment to income, but the cash bill is still 15.3% of net earnings (92.35% of net profit, about 14.1% of profit) up to the wage base.
Real-world scenario
First-year freelance consultant, $80K net profit
SE tax (2025): $80,000 × 92.35% × 15.3% = $11,304. Half of that ($5,652) is deductible above the line, so AGI is about $74,350. Subtract the $15,750 standard deduction and the 20% qualified business income deduction (about $11,720 — capped at 20% of taxable income) and taxable income is about $46,880, for federal income tax of about $5,390 (2025 Tax Table, single). Total federal bill: about $16,690 — or about $19,100 without the QBI deduction. Most first-year freelancers budget for income tax only and get blindsided by the SE portion.
The part most people miss
Electing S-corp taxation at ~$60K+ net profit can cut SE tax meaningfully — you pay yourself a 'reasonable salary' (subject to FICA) and take the rest as distributions (no FICA). At $120K profit: ~$60K salary + $60K distribution can save $4,500-$6,000/year. But you take on payroll filings, a separate return, and IRS scrutiny on 'reasonable comp'. Worth it above ~$75K; not below.
What is Self-Employment Tax?
Self-employment tax is the self-employed version of FICA (Federal Insurance Contributions Act) taxes that employees pay. When you're an employee, you pay 7.65% of your wages for Social Security and Medicare, and your employer pays the other 7.65%.
When you're self-employed, you're both the employee AND the employer — so you pay both halves, totaling 15.3%. However, you get to deduct the "employer half" (7.65%) as an adjustment to income.
Social Security Tax
12.4%
On first $176,100 of net earnings (2025) · $184,500 for 2026
Medicare Tax
2.9%
On ALL net earnings (no cap)
Who Must Pay Self-Employment Tax?
You must pay SE tax if your net earnings from self-employment are $400 or more for the year. This includes:
- Freelancers and independent contractors (1099 workers)
- Sole proprietors
- Single-member LLC owners (taxed as sole proprietors)
- General partners in a partnership
- Gig economy workers (Uber, DoorDash, Etsy sellers, etc.)
- Side hustlers with business income
Note: S-Corp Owners
S-corporation shareholders who are also employees don't pay SE tax on their share of S-corp profits — only on their W-2 wages. This is a key tax planning strategy for higher earners.
How to Calculate Self-Employment Tax
Calculate Net Earnings
Start with your gross self-employment income, then subtract business expenses. This is your Schedule C net profit (or Schedule K-1 for partnerships).
Multiply by 92.35%
The IRS lets you reduce the base by 7.65% (the employer-equivalent portion). Net profit × 0.9235 = net earnings, the SE tax base.
Example: $100,000 net profit × 0.9235 = $92,350 net earnings
Apply the 15.3% Rate
Multiply your SE tax base by 15.3%. If your base exceeds $176,100 (2025) or $184,500 (2026), only earnings up to that Social Security wage base are subject to the 12.4% SS tax; all earnings pay 2.9% Medicare.
Example: $92,350 × 0.153 = $14,130 SE tax
Deduct Half on Form 1040
You can deduct 50% of your SE tax as an adjustment to income on Schedule 1, Line 15. This reduces your AGI and income tax.
Example: $14,130 ÷ 2 = $7,065 deduction
Deductible Business Expenses
Reducing your net profit reduces your SE tax. Here are common deductions self-employed individuals can claim:
Home Office
- • Simplified: $5/sq ft (max 300 sq ft = $1,500)
- • Regular: indirect expenses (rent, utilities, whole-home repairs) × business use %, plus direct expenses for the office alone (e.g. painting it) in full
Vehicle Expenses
- • Standard mileage: 70¢/mile (2025)
- • Or actual expenses (gas, repairs, depreciation)
Equipment & Supplies
- • Computers, software, tools
- • Section 179 for immediate deduction
Professional Services
- • Accountant/tax preparer fees
- • Legal fees, consulting
Health Insurance
- • 100% deductible for self/family
- • Reduces income tax (not SE tax)
Retirement Contributions
- • SEP-IRA: up to 20% of net self-employment earnings (net profit minus ½ SE tax) for yourself; 25% of pay for employees
- • Solo 401(k): up to $70,000 (2025) / $72,000 (2026 IR-2025-111)
Quarterly Estimated Tax Payments
Self-employed individuals generally must pay estimated taxes quarterly if they expect to owe $1,000 or more after withholding and credits and their withholding won't reach 90% of this year's tax or 100% (110% at higher incomes) of last year's. Underpaying can result in penalties.
| Period | Due Date |
|---|---|
| Q1 (Jan-Mar) | April 15, 2026 |
| Q2 (Apr-May) | June 15, 2026 |
| Q3 (Jun-Aug) | September 15, 2026 |
| Q4 (Sep-Dec) | January 15, 2027 |
Retirement Savings Strategies
Self-employed individuals have access to powerful retirement accounts that reduce taxable income:
SEP-IRA
Contribute up to 20% of your net self-employment earnings (net profit minus ½ SE tax) for yourself, 25% of pay for employees (max $70,000 for 2025, $72,000 for 2026). Simple to set up, no annual filings.
Solo 401(k)
Employee deferral $23,500 (2025) / $24,500 (2026), plus catch-ups; employer up to 20% of net SE earnings; total $70,000 (2025) / $72,000 (2026) before catch-ups. Roth option available. Best for high earners.
SIMPLE IRA
Good if you have employees. Employee deferral up to $16,500 (2025) / $17,000 (2026); $17,600 / $18,100 in certain SIMPLE plans under SECURE 2.0; plus catch-ups and the employer match. Lower limits than SEP/Solo 401(k).
OBBB 2025: New Deductions for Self-Employed
The One Big Beautiful Bill Act (2025) includes deductions that may benefit self-employed individuals:
- • Tips Deduction: If your business receives tips (food trucks, freelance service work), you may deduct up to $25,000
- • Car Loan Interest: Interest on a loan taken out after 2024 for a new, US-assembled vehicle for PERSONAL use may be deductible up to $10,000, phasing out above $100,000 MAGI ($200,000 joint). Business-use interest stays a Schedule C expense and cannot be deducted twice.
- • Senior Deduction: Up to $6,000 per person age 65+ (2025-2028), reduced by 6% of MAGI over $75,000 ($150,000 joint); requires a valid Social Security number and, if married, a joint return.
Frequently Asked Questions
Sources & References
Primary references used for this content
Tax Guide for Small Business
Self-employment guidance
View on irs.gov
Self-Employment Tax
View on irs.gov
Retirement Plans for Small Business
View on irs.gov
✓3 primary sources; links re-checked on a weekly rotation by the source watcher
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Disclaimer: This calculator provides estimates for educational purposes only. Not tax, legal, or financial advice. Results may vary based on your specific circumstances. Consult a qualified CPA or tax professional for personalized guidance.