Self-Employment Tax Cheat Sheet

Overview

Self-employment tax covers Social Security and Medicare taxes for individuals who work for themselves. Unlike traditional employees, self-employed individuals must pay both the employer and employee portions of these taxes.

2025 Self-Employment Tax Rates

• Total Rate: 15.3% (12.4% for Social Security + 2.9% for Medicare)
• Social Security Tax Cap: Applies to earnings up to $168,600.
• Additional Medicare Tax: 0.9% on earnings above:
  • $250,000 (Married filing jointly)
  • $200,000 (Single, Head of Household)
  • $125,000 (Married filing separately).

Who Must Pay Self-Employment Tax?

• Freelancers, independent contractors, gig workers, and small business owners.
• Individuals earning $400 or more in net self-employment income.
• Church employees earning $108.28 or more.

How to Calculate Self-Employment Tax

1. Determine Net Earnings: Subtract business expenses from total income.
2. Apply Tax Rate: Multiply net earnings by 15.3%.
3. Deduct Employer Portion: You can deduct half of the self-employment tax when calculating adjusted gross income.

Tax Deductions for Self-Employed Individuals

• Home Office Deduction: If used exclusively for business.
• Health Insurance Deduction: Covers premiums for self-employed individuals.
• Business Expenses: Includes equipment, software, and advertising costs.
• Retirement Contributions: SEP IRA, Solo 401(k), and other tax-advantaged accounts.

Common Pitfalls & How to Avoid Them

• Failing to Set Aside Taxes: Make estimated quarterly payments to avoid penalties.
• Overlooking Deductions: Keep detailed records of business expenses.
• Ignoring Additional Medicare Tax: Plan for extra taxes if earnings exceed thresholds.

Tools & Resources

• IRS Self-Employment Tax Guide for official tax rules.
• Self-Employment Tax Calculator to estimate liabilities.
• Tax Planning Strategies for reducing taxable income.