Self-Employment Tax Explained: What Freelancers Pay

## What is Self-Employment Tax?

Self-employment tax is the Social Security and Medicare tax that self-employed individuals must pay. Employees have these taxes split with their employer, but self-employed workers pay the full amount.

The 15.3% Rate

Breakdown: - **Social Security:** 12.4% - **Medicare:** 2.9% - **Total:** 15.3%

Additional Medicare Tax: If your income exceeds $200,000 (single) or $250,000 (married filing jointly): - Additional 0.9% Medicare tax applies

How SE Tax Compares to Employee Taxes

Employees Pay: - Social Security: 6.2% - Medicare: 1.45% - **Total: 7.65%** - Employer pays matching 7.65%

Self-Employed Pay: - Social Security: 12.4% - Medicare: 2.9% - **Total: 15.3%** - You pay the full amount

Calculating Self-Employment Tax

Step-by-Step:

1. **Calculate Net Self-Employment Income** - Gross income - Business expenses

1. **Multiply by 92.35%** - This is your SE tax base - Accounts for employer-equivalent deduction

1. **Multiply by 15.3%** - This is your SE tax

Example: - Net self-employment income: $50,000 - SE tax base: $50,000 × 92.35% = $46,175 - SE tax: $46,175 × 15.3% = **$7,065**

The Social Security Wage Base

2024 Limit: $168,600

Social Security tax (12.4%) only applies to the first $168,600 of combined wages and self-employment income.

• Example:
• W-2 wages: $100,000
• Self-employment income: $100,000
• SS taxable SE income: $68,600 (limit minus wages)

Medicare has no income limit—the 2.9% applies to all income.

Who Must Pay SE Tax?

Required If: - Net self-employment income is $400 or more - You're a sole proprietor, partner, or LLC member - You receive 1099-NEC income

Exempt: - Employees (employer pays half) - Rental income (generally) - Some religious exemptions

The SE Tax Deduction

Good News: You can deduct the employer-equivalent portion (half) of SE tax from your income tax.

• Example:
• SE tax: $7,065
• Deduction: $7,065 ÷ 2 = $3,532
• This reduces your taxable income

Where to Claim: - Schedule 1 (Form 1040), Line 15 - Reduces income BEFORE calculating income tax

Quarterly Estimated Payments

When Required: If you expect to owe $1,000+ in taxes, make quarterly payments.

Due Dates: - Q1: April 15 - Q2: June 15 - Q3: September 15 - Q4: January 15

How to Pay: - IRS Direct Pay - EFTPS - Mail with Form 1040-ES

Ways to Reduce SE Tax

1. Maximize Business Deductions Lower net income = lower SE tax

• Common deductions:
• Home office
• Vehicle expenses (67¢/mile in 2024)
• Equipment and supplies
• Phone and internet
• Professional development

2. Contribute to Retirement Plans - SEP-IRA: Up to 25% of net SE income - Solo 401(k): Up to $69,000 (2024) - Reduces taxable income

3. Consider S-Corp Election For higher earners, S-Corp status can reduce SE tax: - Pay yourself reasonable salary (subject to payroll tax) - Take remaining profits as distributions (no SE tax) - Consult tax professional before electing

4. Health Insurance Deduction Self-employed health insurance premiums are deductible, reducing income.

Common Questions

Is SE tax in addition to income tax? Yes. SE tax is separate from and in addition to federal income tax.

Can I avoid SE tax? No legal way to completely avoid it, but you can reduce it through deductions and business structure.

Does SE tax count toward Social Security benefits? Yes! SE tax credits you toward Social Security retirement benefits.

What if I also have a W-2 job? Your combined wages and SE income are considered for the Social Security wage base.

Planning Tips

1. **Set aside 25-30%** of income for taxes
2. **Track all expenses** for deductions
3. **Make quarterly payments** to avoid penalties
4. **Consider business structure** if income is high
5. **Consult a tax professional** annually

Track Your Income Properly

Stay organized with professional income documentation:

• Create regular pay stubs for your records
• Track YTD earnings
• Prepare for quarterly payments
• Document income for loans/rentals

[Create Your Self-Employment Pay Stubs →](/)

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*This guide is for educational purposes. Consult a tax professional for personalized advice.*