Self-Employment Tax Explained: Rates, Brackets and Calculating What You Owe

Paula Heid is an assistant director of high-net-worth tax planning and Northwestern Mutual.

If you’ve recently started a business or side hustle, congratulations! Self-employment, whether on a full-time or part-time basis, can be an excellent means of building wealth while enjoying more control over your schedule and work arrangement.

While there are a lot of steps you can take to set yourself up for success in self-employment, one of the most important is to make sure you’ve got a solid plan for how you’ll calculate and pay your taxes—including the self-employment tax.

Not sure what the self-employment tax is? Below, we explain what it is, how it works, and who’s required to pay it. We also take a look at the self-employment tax rate so you’ll be better equipped to calculate your payments each year.

What is the self-employment tax?

The self-employment tax is a type of federal tax that self-employed individuals in the United States must pay for Social Security and Medicare when working for themselves. It’s important to note the self-employment tax is due in addition to—not in place of—federal income tax.

How does the self-employment tax work?

When you work for an employer, your wages are subject to Social Security and Medicare taxes (also known as FICA). Your employer contributes half of the amount owed (7.65 percent), while you contribute the other half via payroll taxes. These taxes are automatically deducted from your paycheck.

When you’re self-employed, you’re responsible for paying both the employer and employee shares of these taxes on your self-employment income, which refers to self-employment tax.

Who is subject to self-employment tax?

If you earn at least $400 in self-employment income during the year—whether via a business that you own, a side hustle or even a hobby that helps you bring in a little extra cash—then you’re required to pay self-employment tax. This may include freelancers, independent contractors and consultants. Self employment income is often reported on a 1099-NEC or 1099-MISC, but be aware that self-employed individuals are required to report all income earned, even if they do not receive a 1099 from a payer.

Passive income earned from investments is taxed separately and is not subject to the self-employment tax.

When are self-employment taxes due?

Federal quarterly estimated tax payments are required if you expect to owe $1,000 or more in taxes (income and self-employment) and don’t have enough tax withheld throughout the year.

This is why it is important for self-employed individuals to set aside a portion of their earnings each time they receive income. The amount set aside should be sufficient to cover federal taxes (including self-employment taxes) and state taxes, if applicable, and will then be available when quarterly taxes are due. This could be anywhere between 10 and 50 percent of earnings, depending on level of income, expenses and state tax considerations. If you are unsure how to calculate how much to set aside, work with a CPA to estimate an appropriate amount, or find other online tools to assist you.

Typically, these payments will be due on the following dates:

• Q1: April 15
• Q2: June 15
• Q3: September 15
• Q4: January 15

If any of these dates falls on a weekend or federal holiday, the due date is moved to the next business day.

Self-employment tax rates

The self-employment tax consists of a 12.4 percent tax for Social Security and a 2.9 percent tax for Medicare, which together equal a combined rate of 15.3 percent.

Depending on your tax filing status and how much you earn, you may be required to pay an additional 0.9 percent Medicare tax. This applies when earned income (wages and self-employment income) exceeds $200,000 (single); $250,000 (joint filers).

The good news? The self-employment tax doesn’t apply to all of your self-employment income—just the first 92.35 percent of it. Likewise, you won’t owe Social Security taxes on any income above the maximum amount of taxable earnings for Social Security during the year—$176,100 for 2025. (You will, however, pay the Medicare tax regardless of how much you earn.)

How to calculate your self-employment tax

For individuals with no wage income, calculating self-employment taxes is a relatively quick process involving just three steps:

1. Add together all of the self-employment income you’ve earned over the course of the year, from all sources; then deduct allowable expenses to arrive at net profit (net income) from self-employment earnings.
2. Multiply that number by 92.35 percent.
3. Multiply that number by 15.3 percent.

Someone who is self-employed on a full-time basis and earns $75,000 in net self-employment income during the year would, for example, calculate their tax like this:

If you also have wage income, your Social Security wages (reported in Box 3 of W-2) should be considered when determining how much of your self-employment income is subject to the Social Security portion (12.4%) of self-employment tax.

Claiming the self-employment tax deduction

When filing your income tax return, the IRS allows you to deduct one-half of your self-employment tax. This amount is similar to allowing an employer to deduct the employer share of FICA taxes if you worked for an employer instead of being self-employed. While this deduction doesn’t directly lower your self-employment tax, it does lower your taxable income subject to federal income tax.

How to reduce self-employment taxes

There are steps that you can take to reduce the amount of self-employment tax that you must pay during the year, including these:

Claiming deductible business expenses

Did you incur business expenses as a part of running your own business or being self-employed? Some of these expenses may be deductible. By deducting all applicable business expenses, you can reduce the net profit you earned from self-employment and ultimately lower how much self-employment tax you need to pay. Some common business expenses include things like these:

• Rent, including for home office space
• Material and supply costs
• Utilities, such as internet, phone and electricity used for business purposes
• Business equipment, including laptops, printers and machinery
• Business insurance

Working with a financial advisor or tax professional

A tax professional can help you minimize your self-employment tax by ensuring that you’re claiming all of the deductions and credits you’re eligible for each year. And your Northwestern Mutual financial advisor can help you see your bigger financial picture and show you how all the pieces fit together.

When you’re self-employed, that often means you’re on your own for benefits that you might get through your employer. Your advisor can help you make sure you have the information you need to identify opportunities and blind spots and give you peace of mind that you’re on track to reach your financial goals.

This publication is not intended as legal or tax advice. This information was compiled by the advanced planning attorneys of The Northwestern Mutual Life Insurance Company. It is intended solely for the information and education of Northwestern Mutual Financial Representatives, their customers, and the legal and tax advisors of those customers. It must not be used as a basis for legal or tax advice, and is not intended to be used and cannot be used to avoid any penalties that may be imposed on a taxpayer. Northwestern Mutual and its Financial Representatives do not give legal or tax advice. Taxpayers should seek advice based on their particular circumstances from an independent tax advisor. Tax and other planning developments after the original date of publication may affect these discussions.