When you work for an employer, they pay half of your Social Security and Medicare taxes. You pay the other half, and it comes out of your paycheck automatically before you ever see it. When you work for yourself, there's no employer. So you pay both halves.

That's self-employment tax: 15.3% of your net self-employment income. It breaks down as 12.4% for Social Security (on income up to the annual wage base limit, which is $176,100 in 2025) and 2.9% for Medicare (no cap). If your net earnings exceed $200,000 as a single filer — or $250,000 if married filing jointly — an additional 0.9% Medicare surtax applies on the excess.

This is on top of your regular federal income tax. So when people ask why the self-employed seem to pay so much more in taxes, this is a major part of the answer.

You owe self-employment tax if your net earnings from self-employment are $400 or more in a year. That's a very low threshold. It applies to:

Freelancers and independent contractors Sole proprietors Single-member LLC owners (taxed as sole proprietors by default)

Partners in a partnership Members of multi-member LLCs taxed as partnerships Even if self-employment is your side hustle rather than your primary income, you still owe SE tax on those earnings.

Let's work through a real example. Say you're a freelance graphic designer who brought in $80,000 in gross revenue and had $15,000 in deductible business expenses. Your net self- employment income is $65,000.

The IRS lets you reduce that amount by 7.65% before applying the SE tax rate (this accounts for the "employer" share of the tax, which is technically deductible). So:

$65,000 × 92.35% = $60,027.50 (your SE tax base) $60,027.50 × 15.3% = $9,184.21 in self-employment tax You'll report this on Schedule SE, which is filed with your Form 1040. That SE tax amount then flows to your total tax liability.

Here's where it gets slightly more forgiving. The IRS gives you two valuable deductions related to self-employment tax:

1. The SE Tax Deduction You can deduct 50% of your self-employment tax from your gross income. In the example above, that's about $4,592 off your taxable income for federal income tax purposes. It doesn't reduce SE tax itself, but it lowers the income tax you owe on top of it.
2. The Self-Employed Health Insurance Deduction If you pay for your own health, dental, or vision insurance (and you're not eligible for coverage through a spouse's employer plan), 100% of those premiums are deductible from your gross income. This is one of the most underutilized deductions for solopreneurs.

Yes — and this is where things get strategically interesting. One of the most common tax- planning moves for solopreneurs with consistent, higher income is electing S corporation status.

Here's the basic idea: if your LLC or corporation is taxed as an S corp, you pay yourself a "reasonable salary" as a W-2 employee of your own company. You pay payroll taxes (Social Security and Medicare) on that salary. But the remaining profit you take as a distribution — and distributions are not subject to self-employment tax.

For example: if your business earns $120,000 in profit, and you pay yourself a reasonable salary of $60,000, you only owe SE tax on that $60,000. The other $60,000 taken as a distribution is not subject to SE tax. The savings can be several thousand dollars per year.

This strategy has real costs — payroll administration, additional tax filings, state fees — so it doesn't make sense for everyone. Most tax professionals suggest considering it when your net self-employment income is consistently above $40,000–$50,000 per year.

Because no employer is withholding taxes from your paychecks, you're responsible for paying your taxes — including SE tax — throughout the year in the form of quarterly estimated payments. If you don't, the IRS can assess an underpayment penalty at the end of the year.

The general rule is to pay at least 90% of your current year's tax liability, or 100% of last year's liability (110% if your adjusted gross income exceeded $150,000), whichever is smaller. We cover this in detail in a separate guide on quarterly estimated taxes.

Set aside money every time you get paid. A common rule of thumb is to set aside 25–30% of every payment for taxes. Some solopreneurs with lower business expenses need to set aside more; those with significant deductions may need less. Run the numbers or work with a CPA to find your right number.

Open a dedicated tax savings account. Don't keep tax money in your operating account. Open a separate high-yield savings account and move your tax set-aside there automatically. It earns a bit of interest, and you're far less likely to spend it.

Track every deductible expense throughout the year. The more legitimate deductions you have, the lower your net self-employment income — and the lower your SE tax. Deductions like business software, contractor payments, advertising, and home office costs all reduce the base.

Work with a tax professional at least once. Even if you plan to file your own taxes going forward, having a CPA review your situation for the first year or two can reveal strategies you'd never find on your own.

Self-employment tax is one of the real costs of working for yourself — and there's no way to avoid it entirely. But understanding how it works, planning for it proactively, and taking every legitimate deduction available can make a meaningful difference in what you actually owe. The solopreneurs who get blindsided at tax time are almost always the ones who didn't see this coming. Now you do.

Want to go deeper? Read our guide on quarterly estimated tax payments and our comprehensive breakdown of deductible business expenses — both designed specifically for solopreneurs like you.

Two levers matter most here: maximizing deductible business expenses and, once profits justify it, an S-corp election. Either way, plan your quarterly estimated payments so April doesn't hurt.