If you’re self-employed, managing your taxes can be one of the most significant and complicated aspects of your finances. You may be paying more in taxes than you anticipated, especially when you consider a tax called the “self-employment tax.” And because estimated taxes are made four times a year, you’ll end up paying more often than you anticipated.
What is the self-employment tax?
The self-employment tax applies to individuals who work for themselves and consists of Social Security and Medicare taxes. By taxing the self-employed, the federal government ensures that all workers in the economy contribute to these programs.
The self-employment tax rate is 15.3 percent. This is the combined total of a 12.4% tax on Social Security and a 2.9% tax on Medicare. Employers withhold payroll taxes from employees, but self-employed individuals must file self-employment taxes directly with the IRS.
Social Security and Medicare taxes are usually split between employers and employees, but self-employed individuals must pay the full 15.3 percent.
Who has to pay self-employment tax?
Self-employment tax applies to individuals who are small business owners, independent contractors, freelancers, gig workers, or otherwise self-employed. If you received a 1099 form for something like goods or services you sold through Venmo, Paypal, eBay, or other apps, that income may be subject to self-employment tax.
You generally have to pay self-employment tax if any of the following apply to you:
Your net income from self-employment is more than $400.
You earned more than $108.28 from church activities.
Self-employed tax rates
The self-employed tax rate for 2024 and 2025 is 15.3%. This rate includes both Social Security tax at 12.4% and Medicare tax at 2.9%. Self-employment tax is only a part of the total tax you have to pay. You still have to pay income tax. The income tax rate you pay depends on which tax bracket you fall into.
The tax rate for self-employed individuals is 15.3%, but there is a cap on the amount of net income subject to Social Security tax. In addition, you will be subject to an additional Medicare tax if your income exceeds a certain amount.
In 2024, only the first $168,600 of your combined salary, tips, and net income is subject to Social Security tax. This amount increases to $176,100 in 2025.
In both 2024 and 2025, you will have to pay an additional Medicare tax of 0.9 percent on any income over $200,000 if you file alone, or over $250,000 if you are married filing jointly.
How to calculate self-employment tax
Calculating self-employment tax is very simple if you use the correct income basis, i.e. net income instead of gross income. Here is a step-by-step guide to calculating self-employment tax:
Before applying tax, first subtract deductions such as: B. Business expenses, to determine your net income. Use Schedule C to report your self-employment income and calculate your net income.
Generally, up to 92.35 percent of your net income is subject to self-employment tax. A 15.3% tax rate is applied to this portion of your net income, taking into account the income limits for the Social Security portion of the self-employment income and the additional Medicare tax that applies if your income exceeds the applicable threshold. Use Schedule SE as a guide to calculate the self-employment tax you owe on your net income.
Also remember that you can deduct half of your self-employment tax (your employer’s share) when calculating your adjusted gross income on Form 1040.
If you have low self-employed income or a loss, there are several alternative methods to calculate your taxes. According to the IRS, using any of these methods may allow you to receive a credit against your Social Security benefits and increase your Earned Income Tax Credit or Child and Dependent Care Tax Credit. For more information, see the instructions for Schedule SE.
When to pay self-employment tax
If you’re self-employed, the IRS requires you to pay estimated taxes, including Social Security, Medicare, and income taxes, quarterly. If you wait to pay until you file your taxes in April, you may be assessed a late fee. Those who do not have taxes withheld from their paychecks are generally required to make four advance payments per year.
Advance payments can be filed using Form 1040-ES by the following deadlines for 2024 and 2025:
Estimated taxes due for 2024: |
For income received: |
April 15, 2024 | Jan. 1 – March 31, 2024 |
June 17, 2024 | April 1 – May 31, 2024 |
Sept. 16, 2024 | June 1 – Aug. 31, 2024 |
Jan. 15, 2025 | Sept. 1 – Dec. 31, 2024 |
Estimated taxes due for 2025: |
For income received: |
April 15, 2025 | Jan. 1 – March 31, 2025 |
June 16, 2025 | April 1 – May 31, 2025 |
Sept. 15, 2025 | June 1 – Aug. 31, 2025 |
Jan. 15, 2026 | Sept. 1 – Dec. 31, 2025 |
How to reduce your tax burden as a self-employed person
Not only can you get by without a boss, but as a self-employed person, you can also qualify for significant tax deductions. Deductions to consider include:
- You can deduct the employer’s portion of your self-employment income portion.
- The qualified business income deduction allows eligible self-employed taxpayers to deduct up to 20 percent of their qualified business income (QBI), available as either itemized deductions or the standard deduction.
- Some of the tax deductions that are widely available to small businesses may also apply to you, including amounts paid for utilities, marketing expenses, insurance, pension contributions, rent, and other business expenses.
Finally, paying attention to the timing of payroll may help reduce your overall tax burden somewhat. Depending on the nature of your work, you may not have direct control over when your payroll is paid. If you’re approaching a large income threshold toward the end of the year that could move you into a higher tax bracket, you may be able to delay invoicing so you don’t get paid for your work until next year.
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