How Self-Employment Tax Works
When you're employed by a company, your employer pays half of your Social Security and Medicare taxes (7.65%) and you pay the other half through payroll withholding. When you're self-employed, you pay both halves — the full 15.3%. The Social Security portion (12.4%) applies to the first $176,100 of net earnings (2025). The Medicare portion (2.9%) applies to all net earnings with no cap. An additional 0.9% Medicare surtax applies to earnings over $200,000 ($250,000 married filing jointly).Calculating SE Tax
Start with your net self-employment income (Schedule C profit minus business deductions). Multiply by 92.35% (this is the adjustment that accounts for the employer-equivalent deduction). Then apply the 15.3% rate. For example, $100,000 net profit: $100,000 x 0.9235 = $92,350. SE tax = $92,350 x 0.153 = $14,129.55. Your deductible half = $7,064.78.
IRS Form SE
Calculate self-employment tax on Schedule SE (Form 1040). You must file Schedule SE if your net self-employment earnings are $400 or more. The deductible half is entered on Schedule 1 (Form 1040), Line 15, and reduces your AGI. This is an above-the-line deduction, meaning you get it even if you take the standard deduction.
Calculate self-employment tax on Schedule SE (Form 1040). You must file Schedule SE if your net self-employment earnings are $400 or more. The deductible half is entered on Schedule 1 (Form 1040), Line 15, and reduces your AGI. This is an above-the-line deduction, meaning you get it even if you take the standard deduction.
Example: Freelance Income
You earn $80,000 net profit from freelancing. Your SE tax calculation: $80,000 x 92.35% = $73,880 taxable. SE tax = $73,880 x 15.3% = $11,303.64. Deductible half = $5,651.82. This $5,651.82 reduces your AGI, which can lower your income tax bracket and affect eligibility for other deductions and credits.
Strategies to Reduce SE Tax
S-corp election is the most common strategy. By paying yourself a reasonable salary and taking remaining profits as distributions, you only pay SE tax on the salary portion. However, this only makes sense above roughly $50,000-60,000 in net profit due to the added costs of payroll, separate tax returns, and compliance. Other strategies include maximizing business deductions to reduce net profit and contributing to retirement accounts (SEP IRA, Solo 401k) which reduce income tax but not SE tax.See Your SE Tax in Real Time
Hivebooks calculates your estimated self-employment tax as you earn, so you know exactly how much to set aside for quarterly payments.
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