Home › Self Employment Resources › Self Employment Tax
What Every Freelancer Should
Know About Self Employment Taxes
Tax Form Wizard
Find out which forms you'll need with this tax form recommender.
How would you describe yourself?
Choose as many as you like
Self-employed
Freelancer, independent contractor, etc
Salaried employee
Full-time or part-time W-2 employee
Business owner
LLC, S corp or partnership
Understanding the taxes every self-employed person must pay
Every American who works and pays taxes falls into one of two categories: a self-employed individual and an employee of a company. Self-employed individuals get paid by a company for work or services performed, mostly on an ad-hoc basis. Employees get paid by a company for work or services performed while they're on the company's payroll. Some people can work as both an employee of a company and as a self-employed individual for other companies simultaneously.
One major difference between the two is that self-employed people are required to pay self-employment taxes, which people working as employees of a company don't need to worry about. Their Social Security and Medicare taxes (which is really what self employment taxes are) are automatically deducted from their paychecks by their employers.
Table of contents
Key takeaways...Read more
What is self employment tax?...Read more
Who pays self employment tax?...Read more
What are Social Security and Medicare taxes?...Read more
What is the self employment tax rate?...Read more
Self employment tax vs income tax...Read more
How to be exempt from self employment tax?...Read more
Self-employment tax calculator 2024...Read more
Key takeaways
- W-2 employees pay FICA tax, self-employed people pay SECA tax
- There's a difference between self-employment and income tax
- Employees of a company split the bill with their employer, while self-employed people need to pay it all, but there is an exception
- A tax calculator can make it much easier to know the self-employment tax you're required to pay
What is self employment tax?
When a self-employed individual pays the Social Security and Medicare taxes that every taxpayer must contribute to the nation's two largest social programs, these taxes are called self-employment taxes, or SE tax. For employees working for a company, the cost of SE tax is split down the middle between the employer and the employee.
But self-employed people are required to pay both portions of self-employment taxes.
Quick tip
Self-employed individuals and freelancers can save a surprising amount on taxes by taking some of the hundreds of deductions available to them, many they probably aren't even aware of.
Who pays self employment tax?
Self-employed people know who they are, but just to be on the safe side, a surefire way to know if you're on the hook to pay self employment taxes is if a company pays you for your work but does not automatically deduct taxes from your payment. In this situation, the IRS considers you to be self-employed.
Who does the IRS require to pay self employment taxes?
- Those who practice a trade or manage a business as a sole proprietor or independent contractor
- Members of a partnership or limited liability company (LLC) that practices a trade or business
- Anyone who is in a business for themselves, including a part-time business
- Anyone who is self-employed and earns $400 or more during the tax year
What is the self employment tax rate?
In every case, the bill for Social Security and Medicare totals 15.3% of all net earnings for every worker. Let's look at the employer/employee relationship first. Companies with employees pay half of that 15.3%, which is 7.65%. The other 7.65% is paid by their employees.
Self-employed individuals are required to pay the entire 15.3% of SECA (Self-employed Contributions Act) taxes. As you now know, SE tax is made up of Social Security tax and Medicare tax. 12.4% of your SECA payment goes toward Social Security, with the second 2.9% going to fund Medicare.
If you've been giving guitar lessons part-time and making deliveries for Grubhub to make $80,000 a year, you'll need to pay the IRS 15.30% of your income as SE taxes. That means you'll owe $12,240, with $9,920 going toward Social Security.
There is a limit on the Social Security part of SE tax, which changes yearly. In 2021, it was $142,800, rising to $147,000 in 2022. Unless you make more than that in a year, you have to pay the full 12.4%, which means you're stuck paying that $9,920.
On the Medicare part, there is no limit. Every self-employed person is required to pay 2.9%, no matter what they make. So you'll need to pay $2,320 on your $80,000.
It may seem unfair that self-employed people are responsible for both portions of SE tax, while employees of companies have half of it paid by their employer, but the IRS offers a workaround. As a self-employed person, you can deduct the employer portion of the self employment taxes from your income tax as a business expense.
Self employment tax vs income tax
Unfortunately, Social Security and Medicare taxes are not the only taxes every working American must pay. Income tax is a percentage tax on the net or total income you make from working, and this is paid in addition to your self employment taxes.
The amount you pay depends on how much income you make. Your income amount places you into one of seven tax brackets, or income ranges. For the 2024 tax year, the lowest tax bracket taxes you at 10%, the second tax bracket at 12%, followed by 22%, 24%, 32%, 35% and 37 percent.
That $80,000 you're making puts you in the 4th tax bracket, the income range between $44,725 and $95,375. That bracket is taxed at 22%, which means you pay 22% of your net income in tax, or $17,600. If you started teaching a few more guitar lessons each month or took a few more deliveries for Grubhub to make $10K, you'd be paying 24% in income tax. Plus you'll be paying estimated quarterly taxes too.
How to be exempt from self employment tax?
Unfortunately, there is no such thing as a self employment tax exemption, except if you earn less than $400 as a self-employed person, in which case you don't have to pay any self-employed taxes. But if you're making a living doing 1099 work, self employment tax exemption is just not a thing.
There is still a way to reduce the amount you pay in income tax, sometimes drastically, by claiming qualified tax deductions. In fact, many freelancers and self-employed individuals mean self employment tax deduction when they say self employment tax exemption. Deductions reduce the amount of your income that can be taxed.
Construction workers working as self-employed individuals can write off tools and equipment. Graphic designers working from home can write off software subscriptions and part of their rent. There are hundreds of deductions that freelancers in any profession can qualify to take, and FlyFin can help you find every single one.
FlyFin can help you find every single one. All you have to is link your expenses and let A.I. do all the work. If you need extra support with 1099 taxes, you can reach out to the expert team of CPAs available 24/7 on the app. They can prepare and file your state and federal tax returns.
Self-employment tax calculator 2024
A self-employment tax calculator makes knowing what you're required to pay the IRS in SE tax a breeze. Paying taxes is never fun or easy, but using a 1099 tax calculator for self-employed individuals can take a lot of work out of the equation.
What’s FlyFin?
FlyFin is a game-changer for freelancers, gig workers, independent contractors and sole proprietors, significantly lowering tax bills and saving self-employed people a ton of time by finding every possible deduction automatically.
A.I. finds every deduction down to the tiniest write-off, and unlimited access to FlyFin's team of expert CPAs provide professional tax consultation for answers to any question 24/7. W-2 employees can file taxes through FlyFin, too! Our CPA team files a guaranteed 100% accurate tax return for you.
Expert tax CPAs ensure 100%-accurate tax filing
A.I. finds every tax deduction, eliminating 95% of your work
On average users save $3,700
Was this tip useful?
Yes
No