Being self-employed gives you freedom and flexibility — but it also comes with extra tax responsibilities. If you’re a freelancer, gig worker, small business owner, or run a trade or business, you’re likely required to pay self-employment tax in addition to income tax.
Understanding what self-employment tax covers, how to calculate it, and how to file it correctly is essential for staying compliant — and protecting your bottom line.
In this guide, we’ll break down:
- What self-employment tax is and who pays it
- The current tax rate for 2025
- How to calculate your tax step by step
- Deductions and ways to reduce what you owe
- How to file and pay self-employment taxes
- Special cases, including family caregivers and LLC owners
What Is Self-Employment Tax?
Self-employment tax is the combination of Social Security and Medicare taxes that self-employed individuals are responsible for paying. Unlike an employed person whose employer pays half of these taxes, self-employed individuals must pay both portions — a total of 15.3% on earnings from self-employment.
This tax goes toward your future benefits from the Social Security Administration, including retirement, disability, and Medicare coverage.
Self-employment tax is separate from income tax and applies only to net earnings from self-employment.
Self-Employment Tax Rate for 2025
As of 2025, the self-employment tax rate remains:
- 12.4% for Social Security (on income up to $168,600)
- 2.9% for Medicare (with no income cap)
Total: 15.3%
If your net profit exceeds $200,000 ($250,000 for married couples filing jointly), an additional 0.9% Medicare tax applies.
Who Must Pay Self-Employment Tax?
You must pay self-employment tax if:
- You are a sole proprietor, freelancer, or independent contractor
- You operate a trade or business
- You earn $400 or more in net profit from self-employment in a year
This applies to:
- Small business owners
- Gig workers and freelancers
- Part-time or seasonal self-employed individuals
- Side hustlers and content creators
If you’re not sure how your income is classified, learn more in our guide to Independent Contractor 1099 Form: Complete Guide for Tax Filing.
What Is the 20% Self-Employment Deduction?
The IRS allows self-employed individuals to deduct 50% of their self-employment tax when calculating their adjusted gross income (AGI).
Additionally, many may qualify for the Qualified Business Income (QBI) deduction, which allows up to 20% of net profit to be deducted from taxable income.
This employment tax deduction lowers your income tax — but not your self-employment tax liability.
Self-Employment Tax Deductions: How to Reduce What You Owe
Here are some common deductions that can reduce your self-employment tax:
- Business expenses (advertising, office supplies, software)
- Home office deduction
- Health insurance premiums (if self-paid)
- Vehicle mileage used for business
- Internet or phone costs (if used for work)
- Retirement plan contributions (e.g. SEP IRA)
Tracking expenses is key to reducing your taxable income and lowering your overall tax obligations. For a deeper look into smart strategies, see our full guide on Tax Deduction Tips for Small Businesses.
And for help keeping records in order, try using a professional tool like Invoice Fly’s Invoice Maker.
Family Caregivers and the Self-Employment Tax
If you’re paid as a caregiver for a family member, you may or may not be considered self-employed. According to the IRS, whether you owe self-employment tax depends on how the caregiving arrangement is structured.
In general:
- If you work independently and receive direct payment, you may owe SE tax.
- If you’re paid through a program as a family employee, different tax rules may apply.
Learn more in: Family Employment in Small Business: Tax Benefits and Legal Requirements.
Can You Avoid Self-Employment Tax with an LLC?
Forming an LLC won’t automatically eliminate self-employment tax — but it can help reduce it under certain circumstances.
Here’s how:
- A single-member LLC is still treated as a sole proprietor for tax purposes, so you’ll still pay SE tax.
- An LLC electing S-Corp status may reduce SE tax by splitting income into salary (taxed) and dividends (not subject to SE tax).
This strategy can be complex and may involve additional filing and payroll obligations. Always consult a tax advisor to see if it makes sense for your business.
How to Calculate Self-Employment Tax
Follow these steps to calculate your self-employment tax:
1. Determine Your Net Profit
Use Schedule C (Form 1040) to calculate total business income minus business expenses.
Example:
$85,000 (total income) – $20,000 (deductible expenses) = $65,000 net profit
Learn more: Schedule C Filing: A Step-by-Step Guide for Independent Contractors
2. Multiply Net Profit by 92.35%
You only pay self-employment tax on 92.35% of your net profit. This accounts for the employer portion of FICA taxes.
$65,000 × 0.9235 = $60,027.50 (taxable self-employment income)
3. Apply the Self-Employment Tax Rate (15.3%)
$60,027.50 × 0.153 = $9,184.21 self-employment tax
4. Deduct Half When Filing
When you file your tax return, you can deduct half of this tax ($4,592.10) as an adjustment to your income.
How Do I Pay Self-Employment Tax?
You pay self-employment tax when you file your annual tax return, using:
- Schedule SE (Form 1040) to report your self-employment tax
- Schedule C to calculate your net earnings
However, if you expect to owe more than $1,000 in total taxes for the year, you’re also required to make quarterly estimated tax payments.
Learn more: Quarterly Estimated Taxes: How to Calculate and Avoid Penalties
Filing Self-Employment Taxes
Here’s what’s required:
- Schedule C: Reports your income and expenses
- Schedule SE: Calculates your self-employment tax
- Form 1040: Your individual tax return
Most small business owners file taxes once a year, but if your business is growing or spans multiple states, filing becomes more complex.
Explore: Multi-State Income: Tax Considerations When Working Across State Lines
What Kinds of Jobs Are Exempt from Paying the Self-Employment Tax?
The following are generally exempt:
- Income from hobby activities
- Rental income (unless it qualifies as a business)
- Dividends or capital gains
- Some religious groups who have filed Form 4361 for exemption
Certain statutory employees (like full-time insurance salespeople) also may not be responsible for paying full self-employment tax.
Make Sure Managing Self-Employment Taxes Is on Your To-Do List
Staying on top of your self-employment tax obligations isn’t just for your own organisation. Consider it a requirement to avoid penalties and keep your business running smoothly.
Here’s what you can do:
- Track your income and expenses regularly
- Set aside 25–30% of income for taxes
- Use digital tools for invoicing and recordkeeping
- File and pay quarterly estimated taxes if required
Need help determining how much to set aside? Check out: What Percentage of Income Should Small Businesses Set Aside for Taxes?
Understanding your self-employment tax obligations helps you manage your money smarter — and avoid surprises at tax time. Stay organised, use the right tools, and revisit your tax strategy as your business grows.
FAQs about Calculating Self-Employment Taxes in 2025
15.3%. Made up of 12.4% for Social Security and 2.9% for Medicare. An additional 0.9% Medicare tax applies for high earners.
Yes. You can deduct 50% of your self-employment tax when calculating your adjusted gross income.
If you expect to owe more than $1,000 in tax, yes. Estimated payments are typically due four times a year.
Not by default. But an LLC electing to be taxed as an S-Corp may help reduce your SE tax. Consult a tax professional first.
The IRS may charge penalties and interest. Stay current and file on time to avoid additional fees.
