Self-Employment & Freelance Tax

Self-Employment Tax Workflow

When you work for yourself, you face two tax obligations that employees don't: self-employment tax on top of income tax, and the responsibility to pay taxes yourself rather than having an employer withhold them. Getting this right saves money and avoids IRS penalties.

Step 1: Estimate Your SE Tax Obligation

Self-employment tax is 15.3% on net self-employment income — the combined employee and employer share of Social Security and Medicare that you now owe entirely. Start with the Self-Employment Tax Calculator to see your quarterly obligation. You can deduct half of SE tax from your taxable income, which partially offsets the burden.

Step 2: Make Quarterly Estimated Payments

The IRS requires quarterly payments if you expect to owe at least $1,000 in taxes. Missing these triggers an underpayment penalty of roughly 8% annually. The safe harbor rule — paying 100% of last year's tax liability (110% if prior-year AGI exceeded $150K) — guarantees no penalty regardless of what you owe. Use the Quarterly Tax Estimator to set each payment amount correctly.

Step 3: Maximize Deductions

Business expenses reduce both income tax and SE tax. Home office deductions are particularly valuable for remote workers — the Simplified method ($5/sq ft, up to 300 sq ft) provides a $1,500 maximum, while the actual expense method can yield more if you have a large dedicated workspace or significant utilities. Mileage is another major deduction: the 2025 IRS standard rate applies to every business mile driven.

Step 4: Evaluate S-Corp Election

Once your net self-employment income consistently exceeds $60,000-$80,000, electing S-Corp status through an LLC or corporation can save $4,000-$10,000+ annually in SE tax by splitting income into a reasonable salary (subject to FICA) and a profit distribution (not subject to SE tax). The LLC vs S-Corp Calculator shows the exact breakeven point and net savings for your income level.