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Guide to Rates, Filing & Deductions

Guide to Rates, Filing & Deductions

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  • Self-employed workers are subject to federal taxes as well as a 15.3% self-employment tax on net earnings above $400.
  • This includes gig workers driving for Uber or Lyft, delivering food or groceries, or selling goods online.
  • Taxpayers can lower the self-employment tax they owe by claiming relevant business expenses.

Self-employed people, including gig workers, have to pay self-employment tax on their net earnings, in addition to federal income tax. That’s because, unlike a traditional job, there’s no employer withholding taxes from their paycheck.

Here’s how the self-employment tax works and how to pay it.

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Overview of self-employment tax

If you own a small business or have a side hustle that generates income, you’re likely to be classified as self-employed or as an independent contractor by the IRS.

The self-employment tax is a Social Security and Medicare tax that helps pay for old-age benefits. People with W-2 jobs pay for Social Security and Medicare too, but they split the cost of this payroll tax with their employer.

With no employer withholding payroll taxes from self-employed people’s paychecks, it becomes their responsibility to pay. There are special rules, however, for farm workers and church employees.

Self-employment tax rates

Self-employed taxpayers are subject to a 15.3% self-employment tax on net earnings, or profit. Profit is the amount left after you subtract related expenses from your income.

The Social Security and Medicare tax rates are the same as they are for traditional employees — 6.2% and 1.45%, respectively. But without a traditional employer in the picture, self-employed workers are left to pay both halves by themselves for a total tax of 15.3% (12.4% Social Security tax + 2.9% Medicare tax).

The Social Security portion of the tax is only assessed on the first $168,600 of net earnings in 2024, while the Medicare tax applies to all of your net earnings. For 2025, the threshold for the Social Security portion increases to $176,100.

Single tax filers with net earnings of more than $200,000 from self-employment have to pay an additional Medicare tax of 0.9%. The additional tax applies to married joint filers with combined earned income above $250,000.

The good news is that you can deduct half of the self-employment tax as an adjustment to income on Schedule 1 of Form 1040. This ultimately lowers your income tax, which is a different calculation.

Filing self-employment taxes

Businesses that paid you for work may send forms to the IRS to report those payments depending on how they classify and pay workers. Common forms include 1099-NEC (Nonemployee Compensation) and 1099-K (Payment Card and Third Party Network Transactions).

The IRS says businesses are required to file a 1099-NEC form for workers who they paid more than $600 throughout the year. You should receive copies of these forms by early February from any company that paid you more than $400 during the tax year.

If you don’t receive these forms, you’ll need to rely on your own payment records to report all net income earned on Schedule C of your tax return. You calculate the self-employment tax on Schedule SE.

Estimated tax payments

The U.S. has a pay-as-you-go tax system, so the IRS requires that self-employed workers pay taxes throughout the year just like traditional employees. Annual tax returns are filed to ensure the correct amount of taxes were paid after deductions and tax credits are taken into account.

For self-employed workers, self-employment taxes and income taxes are due quarterly, or about every three to four months. Here are the income periods and respective tax deadlines for quarterly taxes:

  • January 1 to March 31: payment due on Tax Day, usually April 15
  • April 1 to May 31: payment due June 15
  • June 1 to August 31: payment due September 15
  • September 1 to December 31: payment due January 15 of the following year

When any of these due dates falls on a weekend or a federal holiday, your taxes will be due the following day. If you pay by check, your check just needs to be postmarked by the due date. The quickest and easiest way to pay is via the IRS website.

You might be able to avoid paying estimated taxes if you work a W-2 job and have your withholdings increased to cover your freelance income. Make sure to review and update your W-4 if you prefer paying most of your taxes through regular paychecks.

If you meet these three conditions, the IRS doesn’t require you to make quarterly payments:

  • You had no tax liability for the prior year
  • You were a U.S. citizen or resident for the whole year
  • Your prior tax year covered a 12-month period

You can also skip estimated taxes and pay what you owe on April 15 if the taxes you owe are less than $1,000.

Self-employment tax deductions

As a self-employed worker, you’ll need to report all your income to the IRS, but you can also reduce the amount of taxes you pay on that income by claiming relevant deductions. And if the expenses turn out to be more than the income — meaning your “business” had a loss — you can deduct that loss against your other income for two years before the IRS considers the activity a hobby and disallows the deduction of losses.

Generally, a self-employed taxpayer can deduct any expenses that are considered “ordinary and necessary” for their trade or business. This might include insurance, state and local taxes, interest on loans, travel, and phone or office supplies associated with operating and maintaining your business. It can also include the cost (or partial cost) of a home office or car that is used for conducting business.

As a self-employed worker, you can also deduct the employer portion of the self-employment tax — 7.65% of your net earnings — from your gross income to arrive at your adjusted gross income (AGI). And you may be eligible to deduct 100% of the cost of your health insurance premium from your AGI if you’re not covered by another employer’s plan.

Calculating your self-employment tax

Calculating self-employment tax requires some estimations. You’ll need to project your net earnings for the year, which is gross income minus related business expenses, or use last year’s tax return if you expect to have the same income. Then follow these steps:

1. Multiply net earnings by 0.9235, which is the total self-employment tax (92.35%) that you’ll end up paying on your income.

2. Multiply the result of Step 1 by the Social Security rate (12.4%). If the result of Step 1 is higher than $168,600, use $168,600.

3. Multiply the result of Step 1 by the Medicare rate (2.9%).

4. Add the results of Steps 2 and 3 to get your self-employment tax.

Consider hiring a tax pro if you need help with the calculation or have questions about the requirements for paying the self-employment tax.

FAQs about self-employment tax

The self-employment tax is a tax that pays for Social Security and Medicare. The tax totals 15.3% of net self-employment earnings, which is gross income minus business-related expenses. People who pay it can deduct half as a business expense when calculating federal income tax.

Self-employment tax is different from income tax because it goes directly toward funding Social Security and Medicare. Income tax uses different tax brackets and rates and the revenue funds a variety of other essential services.

You can reduce the amount of self-employment tax you owe by deducting “ordinary and necessary” business expenses from your income. This lowers your net earnings, to which self-employment tax applies.

You can make estimated tax payments online through IRS Direct Pay or mail. The deadlines are generally every three to four months (April 15, June 15, September 15, and January 15).





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