If you're self-employed, you're responsible for both the employer and employee portions of Social Security and Medicare taxes. Understanding these taxes is crucial for budgeting and avoiding penalties.

What is Self-Employment Tax?

Self-employment tax covers Social Security and Medicare for self-employed individuals. The current rate is 15.3% of your net self-employment income:

• 12.4% for Social Security (on earnings up to $168,600 in 2024)
• 2.9% for Medicare (on all earnings)
• 0.9% Additional Medicare Tax (on earnings over $200,000 single/$250,000 married)

Who Pays Self-Employment Tax?

You must pay self-employment tax if:

• You earned net earnings of $400 or more from self-employment
• You're a member of a partnership with net earnings of $400+
• You're a minister, member of a religious sect, or Christian Science practitioner

Quarterly Estimated Tax Payments

Most self-employed people need to make quarterly estimated tax payments to avoid penalties and interest charges. These are due on:

Deductions Available

You can deduct 50% of your self-employment tax from your gross income. This helps reduce your overall tax burden and is calculated on Form SE (Schedule SE).

Additionally, you can deduct other business expenses such as home office, equipment, supplies, and professional services.

Record Keeping Tips

• Track all income and expenses throughout the year
• Keep receipts and invoices for all business expenses
• Use accounting software to simplify tracking
• Set aside 25-30% of income for taxes
• Review quarterly to adjust estimated payments