How Is Self-Employment Tax Calculated?
Multiply your net self-employment income by 92.35% to arrive at taxable self-employment earnings, then apply the 15.3% rate. The Social Security portion only applies to earnings up to the annual wage base (around $168,600 in 2024). The 0.9% Additional Medicare Tax also applies to self-employment earnings above $200,000 for single filers.
Can You Deduct Self-Employment Tax?
Yes. Self-employed taxpayers may deduct half of their self-employment tax as an above-the-line deduction on Schedule 1, reducing your adjusted gross income. This deduction mirrors the tax break employees receive because their employer's share of payroll taxes is not counted as employee income. The deduction reduces income tax but not the self-employment tax itself.
How Do Self-Employed People Pay Self-Employment Tax?
Self-employed individuals pay self-employment tax through quarterly estimated tax payments. You calculate net earnings on Schedule SE and report the tax on Form 1040. Because no withholding occurs automatically, failing to make quarterly payments can result in underpayment penalties even if you pay the full amount when filing.
Frequently asked questions
Do I owe self-employment tax on all freelance income?
You owe self-employment tax if your net self-employment income is $400 or more. Even small amounts of freelance income can trigger the requirement, so track all income and expenses carefully to determine net earnings accurately.
Can I reduce self-employment tax by structuring my business as an S-corp?
Yes. S-corp owners pay themselves a reasonable salary — subject to payroll taxes — and take additional income as distributions not subject to self-employment tax. This strategy can generate meaningful savings for profitable self-employed individuals, but comes with added administrative costs and complexity.