Self-employment tax is how self-employed individuals pay into Social Security and Medicare. As a self-employed person, you pay both the employee and employer portions, totaling 15.3% of your net earnings.

2025 Tax Rates & Limits

Additional Medicare Tax Thresholds

• Single: $200,000
• Married Filing Jointly: $250,000
• Married Filing Separately: $125,000

Important Rules

• You must pay SE tax if net earnings are $400 or more
• Only 92.35% of net earnings are subject to SE tax
• You can deduct 50% of SE tax as an above-the-line deduction
• SE tax is in addition to regular income tax
• Quarterly estimated payments are usually required

Who Pays Self-Employment Tax?

• Independent contractors and freelancers
• Sole proprietors
• Partners in partnerships
• LLC members (in most cases)
• Anyone with 1099-NEC or 1099-K income

Tax Planning Strategies

1. Maximize Business Deductions: Every legitimate expense reduces your SE tax
2. Retirement Contributions: SEP-IRA or Solo 401(k) can significantly reduce taxable income
3. Health Insurance: Self-employed health insurance is deductible
4. Home Office: Claim if you use part of home regularly for business
5. Consider S-Corp: May reduce SE tax if income is substantial (consult a tax pro)
6. Track Everything: Good records ensure you don't miss deductions

Common Mistakes to Avoid

• Forgetting to make quarterly estimated payments
• Not setting aside enough for taxes (aim for 25-30%)
• Missing the employer-equivalent deduction
• Incorrectly calculating the 92.35% of net earnings
• Not tracking all business expenses
• Mixing personal and business expenses