If you’re a freelancer, small business owner, or gig worker, you must understand self-employment tax in managing your finances.
In 2025, tax rules continue to evolve, affecting how much you owe and what deductions you can claim. In this article, we explore self-employment tax, how to calculate it, the latest tax rates, and strategies to reduce your tax bill.
What Is Self-Employment Tax and Who Needs to Pay It?
How is self-employment tax different from regular income tax?
Self-employment tax covers Social Security tax (12.4%) and Medicare tax (2.9%), making the total self-employment tax rate 15.3%. If you work for yourself, you must pay self-employment tax on your net earnings from self-employment in addition to your federal income tax.
Here’s how it differs from regular income tax:
- If you’re an employee, your employer withholds and pays half of your FICA tax (Social Security and Medicare).
- If you’re self-employed, you pay the full amount yourself because you are both the employer and the employee.
However, you can deduct a portion of your self-employment tax when calculating your adjusted gross income (AGI), reducing your taxable income for federal tax purposes.
Who is required to pay self-employment tax in 2025?
You must pay self-employment tax if:
- Your net self-employment income is $400 or more after deducting business expenses.
- You have church employee income of $108.28 or more.
- You earn business income as a freelancer, independent contractor, small business owner, or gig worker.
- You’re filing jointly with a spouse who also has self-employment income.
Self-employment tax applies even if you don’t have taxes withheld like traditional employees. Whether you’re running a full-time business or a side hustle, the tax rules apply no matter how much you earn beyond the $400 threshold.
Further Reading: Explore key tax write-offs for self-employed individuals
How to Calculate Self-Employment Tax in 2025
What is the self-employment tax rate for 2025?
The self-employment tax rate is 15.3%, which is made up of:
- 12.4% Social Security tax on net self-employment income up to $168,600.
- 2.9% Medicare tax on all net earnings.
- An additional 0.9% Medicare surtax on income over a certain threshold:
- $250,000 (Married couples filing jointly)
- $200,000 (Single, Head of Household, or Qualifying Widow(er))
- $125,000 (Married filing separately)
If your earnings from self-employment are subject to these taxes, your total annual tax liability can add up quickly, making tax planning essential.
How do you calculate self-employment tax step by step?
Follow these steps to calculate your self-employment tax:
- Determine net income: Subtract business expenses from your total business income (Use Schedule C).
- Multiply by 92.35%: Only 92.35% of self-employment net earnings are subject to self-employment tax.
- Apply the tax rates:
- First $168,600 - 15.3% tax
- Above $168,600 - 2.9% Medicare tax (plus 0.9% if applicable).
Example Calculation:
If you have $50,000 in net self-employment income, here’s how much you owe:
- $50,000 × 92.35% = $46,175 taxable income
- $46,175 × 15.3% = $7,060 self-employment tax
You can deduct half of the self-employment tax ($3,530) when calculating your adjusted gross income for tax purposes.
If you want to estimate your tax bill quickly, you can use an IRS tax calculator or visit the estimated taxes page on the IRS website.
How to Reduce Your Self-Employment Tax Bill
What self-employment tax deductions can you claim?
To optimize your tax situation and lower your tax liabilities, take advantage of these deductions:
- Self-Employment Tax Deduction: Deduct 50% of your SE tax when calculating federal income tax.
- Home Office Deduction: If you use part of your home exclusively for business, you can deduct:
- A portion of rent/mortgage interest
- Utilities (internet, electricity)
- Office supplies
- Business Expenses: Deduct costs directly related to your work, including:
- Equipment (laptop, printer, phone)
- Advertising and marketing (website, ads, business cards)
- Travel and mileage expenses
If you need help figuring out what applies, the Household Employer’s Tax Guide or a tax professional can help.
How can estimated tax payments help you avoid penalties?
If you expect to owe $1,000 or more, the IRS requires you to make quarterly estimated tax payments to cover your self-employment tax for the year.
Quarterly Due Dates for 2025:
- April 15
- June 15
- September 15
- January 15, 2026
To pay your self-employment tax, use IRS Direct Pay, EFTPS.gov, or mail Form 1040-ES. If you don’t make quarterly estimated tax payments, you could face tax penalties and interest charges.
Further Reading: Learn how to calculate and file self-employment tax
Tax Credits and Filing Tips for Self-Employed Individuals
What tax credits can reduce your self-employment tax liability?
Tax credits directly reduce the tax on your net income—these are some of the most valuable:
- Child Tax Credit: Up to $2,000 per child (refundable up to $1,600).
- Earned Income Tax Credit (EITC): For low- to moderate-income self-employed individuals, worth up to $7,830 depending on income and dependents.
- Self-Employed Health Insurance Deduction: Deduct 100% of your health insurance premiums, including coverage for your spouse and dependents.
These credits can significantly lower the amount you need to pay in self-employment tax.
What’s the best way to file your self-employment taxes?
Filing correctly ensures you don’t overpay or miss deductions. Here’s how to do it:
- Use tax software: Simplify tax filing and ensure compliance with current tax laws.
- Keep detailed records: Track income, business expenses, and estimated tax payments throughout the tax year.
- Consult a tax professional: If your business structure is complex or you need tax planning, hiring a CPA can save you thousands.
Key Takeaways
- The self-employment tax rate is 15.3 %, covering Medicare and Social Security taxes, and applies if your net earnings exceed $400.
- You must file a tax return if you earn self-employed tax income, even if taxes aren’t withheld.
- SE tax rate deductions let you deduct 50% of your self-employment tax on your joint return or individual filing.
- Under the Jobs Act, self-employed individuals can deduct business expenses to lower taxable income.
- Making quarterly estimated payments prevents penalties and ensures you cover your SE tax rate obligations.
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