Self‑Employment Tax Basics: What You Need to Know in 2025
If you run a freelance gig, an online shop, or any solo business, you’ll pay self‑employment tax (SE tax). It’s the money you contribute to Social Security and Medicare because you don’t have an employer to handle it for you. In 2025 the rate stays at 15.3% of your net earnings – 12.4% for Social Security up to the wage base and 2.9% for Medicare with no cap.
First thing’s first: you only pay SE tax on profit, not gross revenue. So track every expense, from your laptop purchase to home‑office internet, and subtract them from your income. The result is your net earnings, and that’s what the 15.3% applies to.
Key Steps to Calculate Your SE Tax
1. Gather your revenue. Pull together all 1099‑NEC forms, payment platform reports, and cash invoices.
2. List every business expense. Include supplies, travel, software subscriptions, and even a portion of rent if you work from home.
3. Compute net earnings. Subtract total expenses from total revenue.
4. Apply the 92.35% rule. The IRS says you can reduce your net earnings by 7.65% before the SE tax rate, because you’ll already pay the employee’s share through income tax. Multiply net earnings by 0.9235.
5. Multiply by 15.3%. The product is the SE tax you owe for the year.
6. Pay quarterly. Use Form 1040‑ES to send estimated payments in April, June, September, and January to avoid penalties.
Top Deductions to Lower Your Tax Bill
Self‑employment gives you a wide range of write‑offs. Here are the ones that matter most:
Home office. If a dedicated space (at least 10% of your home) is used exclusively for work, you can claim a portion of rent, utilities, and internet.
Vehicle mileage. Log business miles and apply the standard mileage rate (about $0.655 per mile in 2025) or deduct actual expenses.
Equipment and depreciation. Computers, cameras, and other tools can be expensed outright under Section 179 or spread out over several years.
Health insurance. If you’re not covered by another plan, the full premium can be deducted from your net earnings, reducing both income tax and SE tax.
Retirement contributions. A SEP‑IRA or Solo 401(k) lets you set aside up to 25% of net earnings, shaving off taxable income.
Don’t forget to keep receipts and a simple spreadsheet – the IRS may ask for proof, and organized records make filing smoother.
When you file your 2025 return, report SE tax on Schedule SE attached to Form 1040. The amount you’ve already paid quarterly will show up as a credit, and any balance due is due by the April deadline.
Having a clear picture of what you owe, how to reduce it, and when to pay can save you both money and headaches. Use these steps each year, and you’ll stay on top of your self‑employment tax without surprise bills.
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