Being your own boss can be rewarding, but one of the drawbacks is that you have to pay self-employment taxes.<\/p>\n
The self-employment tax is a 15.3% tax you\u2019ll pay for Social Security and Medicare taxes if you\u2019re a small business owner, sole proprietor, independent contractor, or freelancer. When you become self-employed, you\u2019re responsible for calculating and withholding these taxes.<\/p>\n If you\u2019re not sure how to calculate the self-employment tax or budget for this expense, you\u2019re in the right place. This article will walk you through when you need to pay the self-employment tax and how to calculate it. We\u2019ll also cover the forms self-employed people should use to file and pay these taxes, along with some tax deductions that can ease the burden of this expense.<\/p>\n When you\u2019re a traditionally employed worker who gets a W-2, you only pay 7.65% of your income in Social Security taxes and Medicare taxes because your employer kicks in the other 7.65%. These taxes are sometimes called FICA taxes (aka Federal Insurance Contribution Act taxes) or payroll taxes.<\/p>\n But self-employed people are responsible for both the employer\u2019s and the employee\u2019s halves of these taxes. That\u2019s why the SE tax rate is typically double the FICA tax rate, or 15.3% when you work for yourself.<\/p>\n Read more: <\/em>Free tax filing: How to file your 2025 return for free<\/em><\/p>\n Below, you\u2019ll find a breakdown of self-employment taxes if you\u2019re a small business owner, contractor, or freelancer. Note that you pay these taxes in addition to any ordinary income taxes and business taxes for which you\u2019re responsible.<\/p>\n Social Security taxes<\/strong><\/p>\n Self-employed individuals pay 12.4% of their wages in Social Security taxes up to an earnings threshold called the Social Security wage cap, which is adjusted annually for inflation. The Social Security wage cap is $184,500 in 2026, up from $176,100 in 2025. Earnings above these amounts are shielded from Social Security taxes. If you worked a regular W-2 job, you and your employer would each pay 6.2% of your earnings in Social Security taxes up to the annual limit.<\/p>\n Medicare taxes<\/strong><\/p>\n Self-employed people also pay 2.9% of their earnings in Medicare taxes, representing both the employer\u2019s and employee\u2019s 1.45% contribution toward Medicare. Unlike Social Security, Medicare doesn\u2019t have a wage cap. In fact, if you earn more than $200,000 as a single filer or $250,000 if you\u2019re married filing jointly, you\u2019ll owe an additional Medicare tax of 0.9%.<\/p>\n You\u2019ll generally need to pay self-employment tax if you have a net income of more than $400 for the tax year from working for yourself. Here are some situations where your earnings would be subject to self-employment taxes.<\/p>\n You own a business as a sole proprietorship or as a partner in a partnership.<\/p>\n<\/li>\n You\u2019re an independent contractor.<\/p>\n<\/li>\n You have church employment income above $108.28 (note the lower threshold).<\/p>\n<\/li>\n<\/ul>\n Note that there are a lot of situations where you may be classified as an independent contractor. If you provide your services directly to a business and aren\u2019t considered an employee, you\u2019re likely an independent contractor \u2014 even if you work for a single company. If you do freelance work, like writing or web design, you\u2019re an independent contractor. The same goes if you do yard work, babysit, or drive for Uber or Lyft as a side hustle.<\/p>\n If you have a side gig on top of a regular W-2 job, you\u2019ll owe self-employment taxes on the portion of your earnings that comes from independent contractor work. For example, if you have a $50,000 salary from your main job but earn an extra $5,000 making grocery deliveries, you\u2019d owe self-employment taxes \u2014 but only on the $5,000 of side income.<\/p>\n Usually, only 92.35% of your net earnings will be subject to self-employment taxes. That\u2019s because the IRS doesn\u2019t count the 7.65% your employer would typically pay as taxable income.<\/p>\n Pro tip: <\/strong>If you have both a regular W-2 job and self-employment income, you could increase your federal tax withholdings for the W-2 job to help cover the self-employment tax. To adjust your tax withholdings, submit a new Form W-4 to your employer.<\/p>\n Suppose you had net earnings of $100,000 from your landscaping business in 2024. You\u2019d calculate your self-employment taxes as follows:<\/p>\n Multiply your net earnings by 0.9235 to arrive at your taxable self-employment income: $100,000 x 0.9235 = $92,350<\/em><\/p>\n<\/li>\n Multiply your taxable self-employment income by 0.153 (the self-employment tax rate) to calculate your self-employment taxes: $92,350 x 0.153 = $14,129.55<\/em><\/p>\n<\/li>\n<\/ol>\n Note that this calculation only tells you your obligation for Social Security and Medicare taxes. You\u2019ll still be responsible for federal income taxes on top of any applicable state and local taxes. Since your tax liability exceeds $1,000 for the year, the IRS would expect you to make quarterly estimated tax payments instead of waiting to pay the entire tax bill when you file your annual income tax return.<\/p>\n Read more: <\/em>How to calculate, pay, and reduce capital gains on real estate<\/em><\/p>\n To file and pay self-employment tax, you\u2019ll need either a Social Security number or an Individual Taxpayer Identification Number (ITIN). Follow the steps below to file and pay self-employment tax.<\/p>\n Gather the relevant documents: <\/strong>Examples include 1099 forms, bank account and credit card statements, and business receipts.<\/p>\n<\/li>\n Use Schedule C to calculate your net profit or net loss: <\/strong>To complete this step, you\u2019ll subtract your business earnings from your business expenses. If you earned more than your expenses, you have a net profit. If your expenses exceed your earnings, you have a net loss. Note that a Schedule C is used if you\u2019re earning self-employment income as a sole proprietor or as a single-member limited liability company (LLC). The process is different if your business is structured as a C corporation or an S corporation.<\/p>\n<\/li>\n Report your net profit or loss on IRS Form 1040 or IRS Form 1040-SR. <\/strong>If you have a net profit, you can report it as part of your income on page 1 using Form 1040. If you have a net loss, you may be able to deduct it from your gross income. Consult IRS Publication 334, Tax Guide for Small Business (For Individuals Who Use Schedule C) for the rules.<\/p>\n<\/li>\n Use Schedule SE to calculate and file your self-employment taxes. <\/strong>You\u2019ll calculate your self-employment taxes using Schedule SE and report the amount due on the \u201cOther taxes\u201d section of Form 1040. If you\u2019re a joint filer and both you and your spouse have self-employment income, you\u2019ll need to include separate Schedule SE forms.<\/p>\n<\/li>\n Determine if you need to pay quarterly taxes. <\/strong>Use IRS Form 1040-ES to determine whether you need to make estimated tax payments and calculate the amount due. You\u2019ll need to calculate your expected adjusted gross income, taxable income, tax liability, personal and self-employment tax deductions, and tax credits to estimate your tax payments.<\/p>\n<\/li>\n<\/ol>\n Tax preparation gets more complicated when you become self-employed. You may want to use tax software for the self-employed or enlist the help of a professional to ensure you follow all the rules, while also maximizing your self-employed tax deductions.<\/p>\n Read more: <\/em>How to file income taxes as an independent contractor<\/em><\/p>\n Fortunately, there are two tax deductions available to self-employed people that can help lower the burden of these extra taxes.<\/p>\n Self-employment taxes: <\/strong>For example, if you paid $2,000 in self-employment tax, you\u2019d reduce your taxable income by $1,000. The reason for this is that the portion of the tax representing the employer\u2019s half isn\u2019t considered taxable income by the IRS. You can claim this deduction as an adjustment to income using Tax Form 1040, regardless of whether you itemize or take the standard deduction.<\/p>\n<\/li>\n Qualified Business Income (QBI) deduction: <\/strong>You may be able to deduct up to 20% of your profits if you\u2019re a freelancer, independent contractor, sole proprietor, or small business owner. <\/strong>This deduction begins to phase out for single and head-of-household filers who earned more than $197,300 (2025) and $201,750 (2026). For married couples filing jointly, the phaseout begins at $394,600 (2025) and $403,500 (2026). The deduction is also available if you don\u2019t itemize your return. Calculating this deduction can get complex, so consult with a tax professional if you have questions.<\/p>\n<\/li>\n<\/ol>\n Read more: <\/em>All about the QBI deduction<\/em><\/p>\n You may qualify for other small-business deductions that can lower your tax bill. For instance, if you use a portion of your home exclusively for business purposes, you may be eligible for the home office deduction. Self-employed individuals can also deduct their health insurance premiums.<\/p>\n If you\u2019re self-employed, you\u2019re typically responsible for making quarterly estimated tax payments for Social Security and Medicare taxes as well as income taxes. That\u2019s because you don\u2019t have an employer withholding these on your behalf.<\/p>\n The IRS requires you to pay estimated taxes if you expect to owe $1,000 or more at tax time after subtracting any taxes withheld and refundable tax credits. You can avoid an underpayment penalty if your quarterly tax payments add up to at least:<\/p>\n 90% of your tax liability for the current tax year, OR<\/p>\n<\/li>\n 100% of your tax liability for the previous tax year (or 110% if your previous year\u2019s AGI was $75,000 if you\u2019re a single filer or $150,000 if you\u2019re married filing jointly)<\/p>\n<\/li>\n<\/ul>\n For example, if you owed $10,000 in taxes for 2025 and expect to owe the same amount in 2026, you\u2019d want to pay at least $9,000 (90% of your 2025 tax obligation) in quarterly taxes throughout the year to avoid an underpayment penalty.<\/p>\n But what if you earn more and wind up owing $12,000 for 2026? To play it safe and avoid risking a penalty in these situations, you could make sure your quarterly taxes add up to $10,000 (100% of your 2025 tax bill). If you earned over $150,000 as a single or joint filer (or $75,000 if you\u2019re married filing separately), you\u2019d want to withhold at least $11,000 (110% of last year\u2019s total tax liability) to meet the IRS requirements.<\/p>\n You\u2019ll calculate your tax obligations using IRS Form 1040-ES. You\u2019ll need to know your income for the previous year for tax preparation purposes when you fill out this form. You\u2019ll also need to estimate your income for the current tax year.<\/p>\n Quarterly filing schedule<\/strong><\/p>\n Despite the name \u201cquarterly estimated tax payments,\u201d the schedule for filing these tax payments doesn\u2019t break down into three-month quarters. Here\u2019s when you need to submit your self-employed taxes. If the due date falls on a weekend, tax payments are due the next weekday.<\/p>\n Read more: <\/em>7 tax-filing strategies that will save you money<\/em><\/p>\n Do self-employment taxes include income taxes?<\/strong><\/p>\n No. Self-employment taxes only consist of the 15.3% tax for Social Security and Medicare you need to pay if you own a business or do freelance or contract work. Self-employed people pay income taxes in addition to self-employment taxes.<\/p>\n What is not considered self-employment income?<\/strong><\/p>\n Any money you earn as a W-2 employee isn\u2019t considered self-employment income. For example, if you\u2019re traditionally employed and receive a salary or an hourly wage, that money isn\u2019t considered self-employment income. You\u2019ll pay FICA taxes instead of self-employment taxes on these earnings.<\/p>\n How much self-employment income can I make without paying taxes?<\/strong><\/p>\n You\u2019ll typically need to pay self-employment taxes and file a tax return if your net earnings from self-employment exceed $400. However, you may still need to file a tax return if your self-employment income is less than $400. For a complete list of the rules, consult the instructions on IRS Form 1040.<\/p>\n<\/p><\/div>\n<\/div>\n<\/div>\n<\/figure>\n
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