The Self-Employment Tax Burden
Self-employment tax breakdown at different income levels
| Tax Type | Rate | Who Pays | Notes |
|---|---|---|---|
| Social Security | 12.4% | You pay both halves | Up to $168,600 (2025) |
| Medicare | 2.9% | You pay both halves | All earned income |
| Additional Medicare | 0.9% | You (above $200K) | Additional for high earners |
| Self-Employment Tax Total | 15.3% | You entirely | Deduct half on Schedule 1 |
| Federal Income Tax | 10%–37% | Normal brackets | SE tax reduces self-employment income |
| Effective Combined Rate | ~28-35% | Typical SE earner | At $80K net SE income |
Quarterly Estimated Tax Payments
If you expect to owe $1,000+ in federal taxes for the year, you must make quarterly estimated payments by: April 15, June 15, September 15, and January 15. The rule of thumb: pay 25-30% of each client payment immediately into a dedicated tax savings account, then remit quarterly.
Missing quarterly estimated payments triggers an underpayment penalty — currently approximately 8% annualized on the shortfall. For a $20,000 annual tax bill paid entirely on April 15 instead of quarterly: approximately $640 in additional penalty. Not catastrophic, but entirely avoidable.
Deductions Available Only to Self-Employed Workers
Tax deductions available to self-employed workers
| Deduction | Amount | Notes |
|---|---|---|
| Home office (exclusive dedicated space) | Regular and exclusive use | $5/sqft up to 300 sqft simplified, or actual expenses |
| Business vehicle | Actual or $0.70/mile (2025) | Business miles only; log required |
| Health insurance premiums | 100% of premiums | Cannot be eligible for employer plan |
| SE tax deduction (half of SE tax) | 7.65% of net SE income | Above-the-line deduction; always available |
| Business meals | 50% of qualifying meals | Business purpose required; not entertainment |
| Professional development | 100% of qualifying costs | Directly related to current business |
| Software and subscriptions | 100% of business-use portion | Business use only |
Record-Keeping: What You Must Maintain
- Mileage log: date, destination, business purpose, odometer — contemporaneous (same day)
- Home office measurements: square footage of dedicated space and total home
- Receipts for business expenses: retain for 7 years
- Bank and credit card statements separating business from personal
- Invoices and client contracts: income documentation
Calculate Your Self-Employment Tax Liability
Enter your net business income and deductions — see your SE tax, estimated payments, and refund or balance due.