Self-employed individuals pay a 15.3% self-employment tax (12.4% Social Security + 2.9% Medicare) on net earnings, plus regular income tax. This replaces the employer/employee split that W-2 workers share. You can deduct half of self-employment tax, plus business expenses, home office deduction, and health insurance premiums to significantly reduce your bill.
Bottom line:
Key Takeaways
- Self-employment tax is 15.3% on net earnings (Social Security 12.4% + Medicare 2.9%)
- You can deduct half of self-employment tax from your income tax
- Quarterly estimated tax payments are due in April, June, September, and January
- Track all business expenses — they reduce both income tax and self-employment tax
- The home office deduction can save $1,000-3,000+ annually for qualifying workers
When you work for an employer, Social
When you work for an employer, Social Security and Medicare taxes (FICA) are split 50/50 between you and your employer. Each pays 7.65%. When you're self-employed, you pay both halves — the full 15.3%.
This applies to anyone earning $400+ in net self-employment income, including freelancers, gig workers, sole proprietors, independent contractors, and side hustlers. The tax applies to Schedule C net profit after business expenses.
Unlike W-2 employees who have taxes withheld
Unlike W-2 employees who have taxes withheld from each paycheck, self-employed individuals must make quarterly estimated tax payments to the IRS. Deadlines are April 15, June 15, September 15, and January 15 of the following year.
Underpaying estimated taxes results in penalties. A safe harbor: pay at least 100% of last year's total tax (110% if income was above $150,000) through estimated payments to avoid penalties, regardless of what you actually owe.
Business expenses
Business expenses: Supplies, software, equipment, professional development, advertising, travel for work, professional subscriptions — all deductible against business income.
Home office deduction: If you use a dedicated space exclusively for work, deduct either actual expenses or the simplified method ($5/sq ft, up to 300 sq ft = $1,500 max).
Self-employed health insurance: 100% of premiums for yourself, spouse, and dependents are deductible above the line.
Retirement contributions: SEP-IRA (up to 25% of net income, max $72,000) or Solo 401(k) (up to $72,000 with catch-up) reduce taxable income significantly.
Half of SE tax: You can deduct 50% of your self-employment tax from your adjusted gross income.
The biggest mistake new freelancers make is
The biggest mistake new freelancers make is spending all their income and being unable to pay their tax bill. Set aside 25-30% of every payment you receive in a separate savings account earmarked for taxes. If your effective rate ends up lower, the surplus becomes extra savings.
How We Evaluated
Tax rates and deduction limits based on IRS 2026 guidelines. Savings estimates assume mid-range self-employment income.Frequently Asked Questions
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