When you switch from a W-2 paycheck to 1099 income, nobody is withholding Social Security or Medicare on your behalf. Under the self-employment (SE) tax rules you become both employee and employer, so you pay the full 15.3 % FICA rate yourself. That extra bite can reach thousands of dollars a year, and it funds your future Social Security retirement, disability, and Medicare hospital coverage. Knowing how the tax works lets you budget accurately, avoid IRS penalties, and keep more of your hard-earned cash.
Quick definition: Self-employment tax is the 15.3 % combined Social Security and Medicare tax you must pay on your net earnings from freelance, gig, or other non-employee work.
Who Counts as “Self-Employed”?
- Freelancers and gig-workers: Designers, rideshare drivers, Etsy sellers—if clients give you 1099-NEC forms instead of W-2s, you’re self-employed.
- Independent contractors: That includes most side-hustlers and consultants.
- Single-member LLC owners: The IRS ignores your LLC for tax purposes unless you elect corporate status, so Schedule C rules still apply.
- Partners in a partnership and members of an LLC treated as a partnership also owe SE tax on guaranteed payments and most distributive share.
- S-corporation shareholder-employees pay SE tax only on “reasonable salary,” not on profit distributions—more on that later.
If you control how, when, and where the work is done, you’re probably self-employed. The old “1099 vs. W-2” test remains the easiest litmus check.
2025 Self-Employment Tax Rates & Income Thresholds
| Component | 2025 Rate | Applies To | Wage Base |
|---|---|---|---|
| Social Security (OASDI) | 12.4 % | First portion of net SE income | $176,100 |
| Medicare (HI) | 2.9 % | All net SE income | No limit |
| Combined “regular” SE tax | 15.3 % | Net SE income up to $176,100 | — |
| Additional Medicare surtax | 0.9 % | Net earnings above $200k (single), $250k (joint) | — |
Remember: You only pay the 12.4 % Social Security portion on the first $176,100 you earn for 2025. Everything above that avoids the OASDI piece but still gets hit by Medicare.
How to Calculate Your Self-Employment Tax Step-by-Step
Step 1 – Find net earnings.
Start with your Schedule C profit, then multiply by 92.35 % (this discount is Congress’s way of letting you remove the “employer” half before computing tax).
Step 2 – Apply the 15.3 % rate.
Example: You net $80,000.
- $80,000 × 0.9235 = $73,880
- $73,880 × 0.153 = $11,305 SE tax
Step 3 – Check the Social Security wage base.
If your net earnings plus any W-2 wages exceed $176,100, only the Medicare portion applies to the excess.
Step 4 – Add the 0.9 % Medicare surtax if your total earned income passes the $200k/$250k threshold.
Step 5 – Claim the “above-the-line” deduction.
You get to deduct half of your SE tax—$5,653 in our example—on Schedule 1 of Form 1040. This reduces your adjusted gross income (AGI) and income-tax bill.
Required Forms & Deadlines
| Form | Purpose | Typical Deadline |
|---|---|---|
| Schedule C (or F for farmers) | Reports your business income & expenses | April 15 (Oct 15 if you file an extension) |
| Schedule SE | Calculates SE tax and the 50 % deduction | Same as Form 1040 |
| Form 1040 | Main individual return | April 15 |
| Extensions (Form 4868) | Extra 6 months to file, not to pay | Submit by April 15—full balance due then |
Missing payment deadlines triggers late-payment penalties and interest, so mark your calendar early.
Quarterly Estimated Taxes: Staying Ahead of Penalties
Because no boss withholds tax for you, the IRS expects quarterly “pay-as-you-go” installments. You can dodge penalties if you:
- Pay at least 90 % of your 2025 total tax or
- Pay 100 % of your 2024 tax (110 % if last year’s AGI topped $150k)
2025 Due Dates
- April 15, 2025
- June 16, 2025 (the 15th falls on Sunday)
- September 15, 2025
- January 15, 2026
Use Form 1040-ES to calculate vouchers, but most freelancers prefer IRS Direct Pay or EFTPS for same-day transfers.
Big-Ticket Deductions That Lower SE Tax
- 50 % SE-tax deduction – Automatic once Schedule SE is filed.
- Self-employed health-insurance premiums – Covers you, your spouse, and kids under 27 if no employer plan is available.
- Retirement contributions – Traditional IRA, SEP-IRA ($69k max for 2025), or Solo 401(k) ($70k with catch-ups) slash both income and Medicare surtax exposure.
- Qualified Business Income (QBI) 20 % deduction – Full benefit if your 2025 taxable income stays below $197,300 (single) or $394,600 (married filing jointly); phase-out to $247,300 / $494,600.
Everyday Write-Offs Freelancers Forget
- Home-office deduction – Choose the easy $5-per-sq-ft method (max 300 sq ft) or track actual share of mortgage interest, rent, utilities, and repairs.
- Internet, phone, and SaaS subscriptions – Deduct the business-use percentage of Zoom, Adobe Creative Cloud, etc.
- Business mileage – 2025 standard rate is TBD in November, but expect ~67 cents per mile; keep a mileage log.
- Travel & meals – 50 % of client-meeting meals; 100 % for food you provide at company events.
- Continuing education & professional dues – Courses, webinars, membership fees.
Good rule: If the expense is ordinary and necessary for your work, it’s likely deductible.
Record-Keeping Systems That Keep the IRS Happy
- Cloud bookkeeping apps – QuickBooks, FreshBooks, Wave—link your bank feeds and automate categorization.
- Digital receipt storage – Snap pics into Google Drive or Dropbox; the IRS accepts scans.
- Separate accounts – Open a dedicated checking and credit card for business so audits are less painful.
Choosing a Business Entity to Manage SE Tax
| Entity | SE Tax Impact | When it makes sense |
|---|---|---|
| Sole proprietorship | Pay SE tax on full profit | Side gigs, early startup stage |
| Single-member LLC | Same as sole prop, but with liability protection | When you need legal shield |
| S-corporation | SE tax only on “reasonable salary”; profit distribution avoids 12.4 % portion | Net profit consistently above ~$60k and you’re willing to run payroll |
Talk to a CPA before jumping to S-corp status; underpaying yourself invites IRS scrutiny.
State & Local Self-Employment Taxes
Most states piggyback on federal definitions but may assess:
- State income tax on net profit.
- State disability insurance levies (e.g., California SDI).
- City business taxes (NYC Unincorporated Business Tax, Seattle B&O).
Check your state’s Department of Revenue website for forms and thresholds—they can differ wildly.
International Freelancers: U.S. SE Tax and Totalization Agreements
Working from Paris for U.S. clients? You still owe SE tax unless you qualify under a totalization treaty between the U.S. and your host country. These agreements usually let you pay into only one country’s Social Security system. File Form USA/Country agreement certificate (varies by country) to avoid double contributions.
Important: The Foreign Earned Income Exclusion shelters income tax, not SE tax. Plenty of digital nomads learn this the hard way.
Common Self-Employment Tax Mistakes (and How to Dodge Them)
- Forgetting the 0.9 % Medicare surtax on high income.
- Using gross receipts instead of net earnings when computing quarterly estimates.
- Blowing past the statute of limitations—you have three years to amend and claim refunds if you overpaid SE tax.
Pro Tips to Trim Your Tax Bill—Legally
- Time income and expenses. Delay December invoices until January if you’re near a QBI or surtax threshold.
- Max retirement contributions before December 31.
- Bunch deductions. Prepay software or training for the next year to drop this year’s AGI.
- Track basis in equipment—Section 179 or bonus depreciation can wipe out big profits.
Frequently Asked Questions
Q: What happens if I skip quarterly estimates?
A: You’ll owe underpayment penalties plus interest, even if you’re due a refund at year-end.
Q: I have a full-time W-2 job and freelance on weekends. Do I still owe SE tax?
A: Yes—on your freelance net earnings. But your W-2 Social Security withholdings count toward the $176,100 wage base.
Q: Can an LLC opt out of Social Security?
A: No. Filing an LLC disregards entity status for tax; SE tax still applies unless you elect S-corp or C-corp treatment.
Q: Does SE tax stop after age 65?
A: Only the OASDI part stops once you exceed the wage base; Medicare continues for life, and the surtax still applies if your earnings are high enough.
Key Takeaways & 30-Day Action Plan
- Budget for 15.3 % of your net freelance earnings and set aside cash weekly.
- Mark quarterly due dates in your calendar or set up automatic EFTPS drafts.
- Track expenses in real time—shoe-box receipts are so 1999.
- Open a retirement account (SEP-IRA or Solo 401(k)) before year-end.
- Revisit your entity choice once profits break ~$60k.
Next 30 Days:
- Open a separate business checking account.
- Subscribe to a cloud bookkeeping app and link your bank feeds.
- Estimate current-year profit and make any catch-up quarterly payment by the next due date.
- Block two hours to read Pub 505’s SE-tax chapter and highlight deductions you missed.
- Schedule a consultation with a CPA if numbers feel overwhelming.
Stay proactive, and self-employment tax becomes one more manageable business expense—not a cash-flow nightmare. You’ve got this!