If you are self-employed, you are responsible for paying both the employer and employee portions of Social Security and Medicare taxes, and you must make estimated tax payments quarterly. Unlike a traditional employee, you are your own bookkeeper, requiring you to track income and expenses to determine your taxable profit.
Self-employment tax
Tax rate: The total self-employment (SE) tax rate is 15.3%, which consists of 12.4% for Social Security and 2.9% for Medicare.
Net earnings: This 15.3% is applied to 92.35% of your net self-employment earnings, not your total revenue. The 92.35% figure is used because it is equivalent to deducting the 7.65% that an employer would normally pay for an employee.
Income cap: For 2025, the Social Security portion (12.4%) only applies to the first $176,100 of your combined wages and self-employment income. The Medicare portion (2.9%) has no income limit.
Estimated taxes
As a self-employed individual, you do not have an employer to withhold taxes from your paycheck, so the IRS requires you to make tax payments quarterly.
Payment schedule: Estimated taxes are typically due on April 15, June 15, September 15, and January 15 (of the following year).
Penalty avoidance: To avoid penalties, your estimated tax payments must cover at least 90% of your current year's tax liability, or 100% of your prior year's tax liability (110% for higher incomes).
Reporting your income and paying taxes
Schedule C: If you are a sole proprietor or independent contractor, you must use Schedule C, Profit or Loss from Business, to report your business income and deduct your expenses.
Schedule SE: You use Schedule SE, Self-Employment Tax, to calculate the amount of Social Security and Medicare taxes you owe based on your net profit from Schedule C.
Deduction: As a self-employed person, you can deduct half of your total self-employment tax on your Form 1040 when figuring your adjusted gross income. This helps to offset the higher tax burden of paying both the employer and employee share.
Common deductions for the self-employed
You can lower your taxable income by deducting "ordinary and necessary" business expenses, including:
Home office: If you use a portion of your home exclusively for business, you may qualify for the home office deduction.
Vehicle mileage: You can deduct costs for business-related driving, either using the standard mileage rate or by tracking actual expenses like gas and repairs.
Business insurance: Health and business insurance premiums can be deductible expenses.
Qualified Business Income (QBI) Deduction: You may be able to deduct up to 20% of your qualified business income.