Understanding Self-Employment Tax
Self-employment tax is one of the biggest surprises for new freelancers and entrepreneurs. When you're employed, your employer pays half of your Social Security and Medicare taxes. When you're self-employed, you pay both halves — 15.3% total on net self-employment earnings. This calculator helps you plan for this obligation and stay current with quarterly payments.
How SE Tax Is Calculated
SE tax is calculated on 92.35% of net self-employment income (not 100%). This 92.35% factor accounts for the employer-side deduction. Then Social Security tax (12.4%) applies on earnings up to $176,100 in 2025, and Medicare tax (2.9%) applies on all earnings. High earners also pay an additional 0.9% Medicare surtax on SE income over $200,000 (single) or $250,000 (MFJ).
The SE Tax Deduction
You can deduct half of your SE tax as an above-the-line adjustment to income, reducing your AGI. This mirrors the deduction employers receive for their half of FICA. The deduction doesn't reduce SE tax itself — only income tax. If you owe $8,000 in SE tax, you deduct $4,000 from your taxable income, saving you income tax at your marginal rate on that $4,000.
Quarterly Estimated Tax Payments
Self-employed individuals must pay taxes quarterly rather than annually. The 2025 deadlines are: April 15 (Q1), June 16 (Q2), September 15 (Q3), and January 15, 2026 (Q4). Failing to make adequate quarterly payments triggers an underpayment penalty. The safe harbor rule: pay at least 100% of prior year tax (110% if AGI exceeded $150,000) or 90% of current year tax.
Reducing Self-Employment Tax
Business expenses reduce net SE income, which directly lowers SE tax. Consider an S-corporation election if net SE income exceeds $60,000–$80,000 — S-corps allow you to split income between salary (subject to payroll tax) and distributions (not subject to SE tax), potentially saving thousands. Consult a CPA before making entity structure changes.