Calculate self-employment tax (Social Security and Medicare taxes) for freelancers, contractors, and business owners. Estimate quarterly payments and understand your total tax obligations.
Understanding Self-Employment Tax
Self-employment tax consists of:
- Social Security Tax: 12.4% on net earnings up to the wage base limit
- Medicare Tax: 2.9% on all net earnings
- Additional Medicare Tax: 0.9% on earnings over $200,000 (single) or $250,000 (married)
Key Self-Employment Tax Facts
- You pay both the employer and employee portions of Social Security and Medicare taxes
- You can deduct half of your self-employment tax as a business expense
- Net earnings subject to self-employment tax are reduced by 92.35% (7.65% deduction)
- Quarterly estimated tax payments may be required if you owe $1,000 or more
Reducing Self-Employment Tax
Strategies to minimize self-employment tax:
- Maximize legitimate business deductions
- Consider S-Corp election for higher income levels
- Contribute to SEP-IRA or Solo 401(k) plans
- Track all business expenses throughout the year
Frequently Asked Questions
How is self-employment tax calculated and what rates apply?
Self-employment tax consists of Social Security tax (12.4%) and Medicare tax (2.9%), totaling 15.3% on net earnings from self-employment. You pay both the employer and employee portions. Social Security tax applies to earnings up to the annual wage base ($160,200 in 2024), while Medicare tax applies to all earnings. Additional Medicare tax of 0.9% applies to earnings over $200,000 for single filers or $250,000 for married filing jointly.
What deductions can I take to reduce self-employment tax?
You can deduct half of your self-employment tax as a business expense on your income tax return. This deduction reduces your adjusted gross income but not your self-employment tax itself. To reduce SE tax, focus on legitimate business deductions like office expenses, equipment, professional services, marketing costs, and business-related travel. Net earnings from self-employment are calculated as gross income minus business expenses, then multiplied by 92.35% for SE tax purposes.
Do I need to make quarterly estimated tax payments for self-employment tax?
Yes, if you expect to owe $1,000 or more in total taxes (including self-employment tax), you generally must make quarterly estimated tax payments. SE tax is not withheld from your earnings like regular employment, so you're responsible for paying it throughout the year. Quarterly payments are due on January 15, April 15, June 17, and September 16 for the previous quarter's earnings. Failure to make adequate quarterly payments may result in penalties.