Quick explanation
Self-employment tax is the Social Security and Medicare tax paid by freelancers, contractors, and business owners.
Self-employment tax is a federal tax that funds two major U.S. programs: Social Security and Medicare.
If you work as an employee, these taxes are automatically withheld from your paycheck. Your employer also pays part of the tax on your behalf.
However, if you work for yourself — as a freelancer, contractor, or small business owner — you must pay both portions of these payroll taxes yourself. That combined tax is called self-employment tax.
Current self-employment tax rate
The self-employment tax rate is currently 15.3%.
| Tax type | Rate |
|---|---|
| Social Security | 12.4% |
| Medicare | 2.9% |
| Total | 15.3% |
Employees normally pay only 7.65% because their employer pays the other half.
Self-employed workers pay the full amount because they are considered both the employee and the employer.
Who must pay self-employment tax?
You may need to pay self-employment tax if you earn income from work that is not classified as traditional employment.
Common examples include:
- freelancers
- independent contractors
- consultants
- gig economy workers
- small business owners
- sole proprietors
If your net earnings from self-employment exceed $400 in a year, the IRS generally requires you to report and pay self-employment tax.
How self-employment tax is calculated
Self-employment tax is calculated using your net earnings from self-employment.
Net earnings equal:
- total business income
- minus business expenses
After expenses are deducted, the remaining profit is used to calculate self-employment tax.
The IRS applies the 15.3% tax rate to approximately 92.35% of net earnings. This adjustment accounts for the employer portion of payroll taxes.
Example calculation
Suppose a freelancer earns $60,000 in net income after expenses.
First, the IRS multiplies net earnings by 92.35%.
$60,000 × 92.35% = $55,410
Next, self-employment tax is applied:
$55,410 × 15.3% ≈ $8,470
This amount represents the Social Security and Medicare taxes owed.
Self-employment tax vs income tax
Self-employment tax is separate from regular federal income tax.
A self-employed person may owe both taxes:
- self-employment tax (Social Security + Medicare)
- federal income tax
This is why contractors sometimes experience higher total tax obligations compared to employees.
Deduction for half of self-employment tax
The IRS allows self-employed workers to deduct half of their self-employment tax when calculating taxable income.
This deduction exists because employees effectively receive the same benefit when employers pay half of their payroll taxes.
While this deduction reduces income tax, it does not reduce the self-employment tax itself.
Estimated quarterly taxes
Unlike employees, self-employed workers usually do not have taxes withheld automatically.
Instead, the IRS requires many self-employed individuals to make quarterly estimated tax payments.
These payments typically occur in:
- April
- June
- September
- January
Quarterly payments help avoid penalties and prevent large tax bills at the end of the year.
Strategies for managing self-employment tax
Many freelancers and business owners plan ahead to manage their tax obligations.
Common strategies include:
- setting aside 25–30% of income for taxes
- tracking deductible business expenses
- making quarterly estimated payments
- using retirement accounts to reduce taxable income
Proper planning can prevent financial surprises during tax season.
Related tax tools
FAQ
Is self-employment tax the same as income tax?
No. Self-employment tax funds Social Security and Medicare. Income tax is calculated separately.
Do freelancers pay more taxes?
Freelancers often pay both halves of payroll taxes, which increases total tax responsibility compared to employees.
Do I have to pay self-employment tax every year?
You generally must pay it if your net self-employment earnings exceed $400.