What Is Self-Employment Tax?
Quick Answer
Self-employment tax is 15.3% of your net self-employment income, covering both the employee and employer portions of Social Security (12.4%) and Medicare (2.9%). W-2 employees split these FICA taxes 50/50 with their employer, but if you are self-employed, you pay both halves yourself. The silver lining is that you can deduct half of the self-employment tax when calculating your AGI, reducing your income tax.
How Self-Employment Tax Works
When you work as a W-2 employee, your employer pays 7.65% in FICA and you pay 7.65%. As a self-employed person, you are both the employer and the employee, so you owe the full 15.3%.
2025 Self-Employment Tax Rates
| Component | Rate | Applies To |
|---|---|---|
| Social Security | 12.4% | Net SE income up to $176,100 |
| Medicare | 2.9% | All net SE income |
| Additional Medicare | 0.9% | Net SE income above $200,000 |
| Total (typical) | 15.3% |
The tax is calculated on 92.35% of your net self-employment earnings (a small adjustment that approximates the employer deduction).
Real Example With Actual Numbers
Diego is a freelance graphic designer in Texas earning $90,000 in gross revenue with $15,000 in business expenses.
| Calculation | Amount |
|---|---|
| Gross revenue | $90,000 |
| Business expenses (software, equipment, marketing) | -$15,000 |
| Net self-employment income | $75,000 |
| SE tax base (92.35%) | $69,262.50 |
| Self-employment tax (15.3%) | $10,597.16 |
| Deductible half (7.65%) | -$5,298.58 |
Diego owes $10,597 in self-employment tax on top of his federal income tax. However, he deducts $5,299 from his AGI, which reduces his income tax. His total effective tax rate on the $75,000 is significantly higher than a W-2 employee earning the same amount. Compare using the freelance calculator.
Self-Employment Tax vs Employee FICA
| Employee (W-2) | Self-Employed | |
|---|---|---|
| Your share of FICA | 7.65% | 15.3% |
| Employer's share | Paid by employer (7.65%) | You pay it (included in 15.3%) |
| Deduction for employer share | N/A | Yes — half of SE tax deducted from AGI |
| Extra cost on $75K | $5,737.50 | $10,597 (net cost after deduction: ~$9,400) |
The net difference — after accounting for the AGI deduction — is roughly $3,000-$4,000 more on $75,000 in income. See the 1099 vs W-2 comparison for a full breakdown.
Reducing Self-Employment Tax
While there are no deductions that directly reduce SE tax (unlike income tax), you can lower the base it applies to:
- Deduct all legitimate business expenses: Every dollar in deductions reduces your net SE income and your SE tax
- Use the home office deduction: If you work from home, this can reduce taxable SE income
- Consider an S-Corp election: Business owners can pay themselves a "reasonable salary" and take remaining profits as distributions, which are not subject to SE tax
- Maximize retirement contributions: While this does not reduce SE tax, contributions to a Solo 401(k) or SEP-IRA reduce your income tax
Paying Self-Employment Tax
Self-employed workers do not have an employer withholding taxes from their pay. Instead, you must make quarterly estimated tax payments to the IRS (and your state, if applicable). The payments cover both income tax and self-employment tax.
Self-employment tax is calculated on Schedule SE and filed with your annual tax return. Try the freelance calculator to estimate your quarterly payments, or see the full independent contractor tax guide.