If you are a freelancer, independent contractor, or run your own business, you are responsible for self-employment (SE) tax in addition to regular income tax. This is one of the biggest surprises for people who transition from W-2 employment to self-employment. Here is everything you need to know.
What Is Self-Employment Tax?
Self-employment tax is how self-employed individuals pay into Social Security and Medicare. When you work for an employer, your employer pays half of these payroll taxes and withholds the other half from your paycheck. When you work for yourself, you pay both halves.
The total SE tax rate is 15.3%, broken down as:
- 12.4% for Social Security (on earnings up to $176,100 in 2025)
- 2.9% for Medicare (on all earnings, no cap)
If your net SE income exceeds $200,000 (single) or $250,000 (married filing jointly), an additional 0.9% Medicare surtax applies to earnings above those thresholds.
The 92.35% Factor
You do not pay SE tax on 100% of your net self-employment income. Instead, you multiply your net earnings by 92.35% (0.9235) to arrive at the amount subject to SE tax. This adjustment mirrors the fact that employers pay their half of FICA on top of wages, rather than reducing wages to cover it.
For example, if your net self-employment income is $100,000:
- Taxable SE income: $100,000 x 0.9235 = $92,350
- SE tax: $92,350 x 15.3% = $14,130
The Half-SE Tax Deduction
The silver lining: you can deduct half of your self-employment tax as an above-the-line deduction on your Form 1040. In the example above, you would deduct $7,065 from your gross income, reducing your income tax. This deduction reduces your taxable income but not your SE tax itself.
Quarterly Estimated Tax Payments
Since no employer is withholding taxes from your income, you are generally required to make quarterly estimated tax payments to the IRS. This covers both your income tax and self-employment tax.
2025 Due Dates
| Quarter | Income Earned | Payment Due |
|---|---|---|
| Q1 | January – March | April 15, 2025 |
| Q2 | April – May | June 16, 2025 |
| Q3 | June – August | September 15, 2025 |
| Q4 | September – December | January 15, 2026 |
Note that the quarters are not evenly split — Q2 covers only two months while Q3 covers three.
How to Calculate Your Quarterly Payments
The simplest approach is to estimate your annual net self-employment income, calculate the total tax (income tax plus SE tax), and divide by four. You can use Form 1040-ES or our quarterly estimated tax calculator.
The Safe Harbor Rule
To avoid underpayment penalties, you must pay at least:
- 100% of your prior year’s total tax liability, or
- 90% of your current year’s tax liability
If your AGI exceeded $150,000 in the prior year ($75,000 if married filing separately), the safe harbor threshold increases to 110% of prior-year tax.
Common Deductions That Reduce SE Income
Your SE tax is calculated on net self-employment income — gross income minus business expenses. Common deductions include:
- Home office expenses (simplified or actual method)
- Business equipment and supplies
- Professional development and subscriptions
- Health insurance premiums (for the self-employed)
- Vehicle expenses for business use
- Business travel and meals (50% for meals)
The more legitimate business deductions you claim, the lower your SE tax burden.
Key Takeaway
Self-employment tax at 15.3% is a significant cost, but understanding the 92.35% factor, the half-SE deduction, and available business deductions can meaningfully reduce your total tax bill. Set aside approximately 25–30% of your net income for taxes, make your quarterly payments on time, and you will avoid costly surprises at filing time.