TL;DR

Self-employment tax is the freelancer's version of payroll taxes. Instead of splitting Social Security and Medicare with an employer, you pay the full 15.3% yourself. It's in addition to regular income tax — and it surprises many first-time freelancers.

Key Points

✓

Self-employment tax is currently 15.3% of net self-employment income (12.4% Social Security + 2.9% Medicare)

✓

The Social Security component applies to the first $168,600 of net earnings in 2024; Medicare applies to all income

✓

You can deduct half of your self-employment tax when calculating your adjusted gross income on your federal return

✓

Self-employment tax is paid via [[estimated-tax|quarterly estimated tax payments]] throughout the year

How Self-Employment Tax Works

When you work as an employee, your employer pays half of your Social Security and Medicare taxes — 7.65% from your paycheck and another 7.65% as an employer match. As a self-employed Freelancer or Independent Contractor, there's no employer, so you pay both halves — totaling 15.3% on your net self-employment income¹. This applies to income from freelancing, consulting, gig work, and any business activity where you're not an employee. Net self-employment income is your gross revenue minus your deductible business expenses — which is why tracking business expenses carefully is so financially important.

The Deduction That Partially Offsets It

The IRS allows you to deduct 50% of your self-employment tax from your gross income when calculating federal income taxes — not as a business deduction, but as an above-the-line adjustment. This is the equivalent of the employer portion an employee's company would deduct. If you owe $10,000 in self-employment tax, you can deduct $5,000 from your income before calculating your income tax. This deduction doesn't eliminate the SE tax but reduces the income tax you owe on the same income. Most tax software calculates this automatically, but understanding it helps you plan effectively.

Reducing Self-Employment Tax Legally

Once your net self-employment income consistently exceeds $40,000–$50,000 per year, many tax advisors recommend forming an S corporation. As an S corp owner-employee, you pay yourself a reasonable salary (subject to SE tax) and take the rest of profits as distributions (not subject to SE tax). The savings can be substantial but require additional administrative overhead — payroll, separate business banking, and more complex tax filings². This strategy should always be implemented with the guidance of a CPA who can evaluate whether the tax savings justify the added costs in your specific situation.

References

IRS — Self-Employment Tax (Social Security and Medicare Taxes) ↗

irs.gov

IRS — Business Taxes for Self-Employed Individuals ↗

irs.gov

Last updated: June 9, 2026

Related Terms

Estimated Tax

Advance tax payments made by self-employed individuals throughout the year to cover federal (and often state) income taxes and self-employment taxes, in the absence of employer withholding.

Independent Contractor

A self-employed individual or business that provides services to clients under a contract, without being classified as an employee of the engaging organization.

Freelancer

A self-employed individual who provides services to clients on a project or contract basis rather than as a permanent employee of any single organization.

Sole Proprietor

An individual who owns and operates an unincorporated business personally, bearing full personal liability for all business debts and obligations.

Tax Deduction

A business or personal expense that can be subtracted from gross income to reduce the total taxable income, thereby lowering the amount of tax owed.

Put it into practice

Create professional invoices in seconds with LiteBill — free forever, no account required. Apply these concepts to your real billing workflow today.

Try LiteBill Free

← Previous in Taxes & Compliance

Sales Tax

Next in Taxes & Compliance →

Tax Deduction