Self-Employment Tax: What Freelancers and 1099 Workers Owe

What self-employment (SE) tax actually is

When you're a W-2 employee, your paycheck has Social Security and Medicare withheld — 7.65% from you, with your employer paying another 7.65%. When you work for yourself, you're both. You pay the full 15.3%.

That's it. SE tax is just Social Security + Medicare for self-employed people. It's separate from federal income tax.

The 15.3% breakdown

You only pay it on 92.35% of net earnings

SE tax is calculated on net SE earnings × 0.9235. Why? Because employees don't pay FICA on their employer's half — this multiplier puts you on equal footing.

Example: $40,000 of freelance profit. SE base = $40,000 × 0.9235 = $36,940. SE tax = $36,940 × 15.3% = $5,652.

You get a deduction for half of it

You can deduct the "employer half" (7.65%) of your SE tax from your gross income on Schedule 1. This doesn't reduce SE tax itself — but it lowers your federal income tax.

Don't wait until April — pay quarterly

If you'll owe more than $1,000 at tax time, the IRS expects four estimated payments throughout the year:

• April 15 (for Q1)
• June 15 (for Q2)
• September 15 (for Q3)
• January 15 of next year (for Q4)

Miss these and you owe an underpayment penalty even if you pay everything by April 15.

Legal ways to lower SE tax

1. Track every business expense. SE tax is on net profit. Home office, mileage, software, equipment, phone — all reduce net.
2. Open a SEP-IRA or Solo 401(k). Reduces income tax (not SE tax) on up to 25% of net earnings.
3. Consider an S-Corp election at higher income levels ($60K+ net). Pay yourself a reasonable salary; remaining profit isn't subject to SE tax. Adds payroll complexity — talk to a CPA first.
4. Hire your spouse or kids legitimately if the work is real and documented.

Quick estimator

Use our Self-Employment Tax Calculator to see your exact SE tax and deductible half in seconds.