If you’re a sole proprietor, freelancer, or independent contractor, then you’ll likely need to pay self-employment tax. Considered the equivalent of payroll taxes that W-2 employees pay, self-employment tax is due on income earned and must be paid regardless of whether you receive a 1099-MISC for your services. The self-employment tax rate includes both Social Security and Medicare taxes.
Self-employment tax is separate from income tax, although it’s reported on the individual income tax return. Sole proprietors, freelancers and general partners must pay both income tax and self-employment tax on their earnings. Learn more about calculating all of your small business taxes.
Self-employment Tax Rate Table for 2023 & 2024
Year | Social Security Tax | Medicare Tax |
|---|---|---|
2023 | 12.4% on the first $160,200 of wages and self-employed income | 2.9% of all wages and self-employed income |
2024 | 12.4% on the first $168,600 of wages and self-employed income | 2.9% of all wages and self-employed income |
The $168,600 limit (for 2024) for income subject to Social Security tax includes both income from wages and self-employment income. This tax only applies to the first $168,600 of your earned income from wages and self-employment—you won’t be charged any additional Social Security tax after that. In contrast, there’s no limit on the Medicare portion of the self-employment tax. No matter how much you earn, the Medicare tax applies to all of your wages and self-employment income.
Who Has To Pay Self-employment Tax?
Anyone who makes $400 or more in self-employment income must pay self-employment taxes. Self-employment income is any income earned by carrying on a trade or business organized as a sole proprietorship or partnership.
Here are a few examples of people subject to self-employment tax:
- A sole proprietor, which is defined as any trade or business owned by one person that isn’t organized as a limited liability company (LLC) or a corporation
- A partner in a partnership
- A member (owner) of an LLC taxed as a sole proprietorship or partnership
- An independent contractor or freelancer, such as a Lyft or Uber driver
Sole proprietors and partnerships should receive Form 1099-MISC from any business customers who pay them more than $600 during the year for services. However, the income you receive is taxable regardless of whether you receive a Form 1099-MISC.
When To Pay Self-employment Taxes
Self-employment taxes are paid quarterly throughout the year along with any estimated income tax that’s due:
Due Dates for Estimated Tax Payments for 2024
Year | Income Earned | Payment Due Date |
|---|---|---|
2024 | January 1 to March 31 April 1 to May 31 June 1 to August 31 September 1 to December 31 | April 15 June 17 September 16 January 15, 2025 |
If the due date for making an estimated payment falls on a Saturday, Sunday, or legal holiday, the payment will be on time if you make it on the next business day.
There’s no form showing the tax calculation that’s filed on a quarterly basis. You include your estimated self-employment tax along with any estimated income tax you owe and pay it to the IRS. You can make the payment using the Electronic Federal Tax Payment System (EFTPS) or by mailing a check along with Form 1040-V, which is simply a voucher with your name, Social Security number, and the amount of the payment.
How To Report Self-employment Tax
Business owners and partners use Schedule SE to compute and report self-employment taxes annually. A Schedule SE must be completed for each spouse who has self-employment income, and it must be attached to the individual return (Form 1040). Any quarterly payments of tax made during the year will offset the self-employment tax calculated on the annual return.
Frequently Asked Questions (FAQs)
Why do I owe so much self-employment tax?
Tax on self-employment income can seem very high because, in addition to federal, state, and local income taxes, you must pay a 15.3% tax for Social Security and Medicare. While employees split the cost of Social Security and Medicare with their employer, self-employed taxpayers shoulder the entire amount themselves.
Is there a deduction for self-employment taxes?
Yes, you can deduct 50% of your self-employment taxes on line 15 of schedule 1 when you file IRS Form 1040.
Other than the tax deduction for the payment of self-employment taxes, what other deductions can I claim?
Self-employed individuals can claim a number of deductions during the tax year. You can typically claim a deduction for all ordinary and necessary expenses incurred for your business, including the use of your home office, payment of health insurance premiums, travel expenses, meals, interest expenses, etc. To learn more, check out Tax Write-offs for Self-Employed Taxpayers.
Bottom Line
Now that you understand the calculation of your self-employment tax, you can be confident in the estimation of your quarterly tax payment. Because you don’t have an employer withholding the tax from your wages, you must be disciplined in making the required quarterly payment so that you don’t fall behind and suffer underpayment penalties.
