Being self-employed means you are both the employer and the employee for tax purposes — which means you pay both halves of payroll taxes. Combined with income tax, an unaware freelancer can face a tax bill of 30–40% of net income, often arriving as a surprise when they file their first return. Here is the complete picture.

The Self-Employment Tax: 15.3%

Self-employment tax covers Social Security (12.4%) and Medicare (2.9%) taxes. As a W-2 employee, you pay half (6.2% + 1.45%) and your employer pays the other half. Self-employed, you pay both halves: 15.3% on all net self-employment income up to the Social Security wage base ($168,600 in 2025), then 2.9% above that.

On $75,000 net SE income: 15.3% × $75,000 = $11,475 in SE tax. Then income tax is applied on top.

Key Deductions That Lower Your Bill

Half of SE Tax Deduction

You can deduct 50% of your SE tax from your gross income (on Schedule 1, line 15). This partially compensates for the fact that W-2 employees’ employer halves of payroll taxes are not included in their taxable income.

Self-Employed Health Insurance

100% of premiums you pay for health, dental, and vision coverage for yourself and your family are deductible from gross income. This is one of the most valuable deductions available to the self-employed.

SEP-IRA or Solo 401k

SEP-IRA: contribute up to 25% of net SE income, maximum $69,000 in 2025. Solo 401k: up to $23,500 in employee contributions plus 25% of net earnings as employer contributions, up to $70,000 combined. Both reduce your taxable income dollar-for-dollar.

Business Expenses

Home office (exclusive regular use required), equipment, software, professional development, vehicle (business miles at 67 cents/mile in 2025), business insurance, and professional subscriptions are all deductible on Schedule C.

Avoiding the Underpayment Penalty

Pay quarterly estimated taxes (due April, June, September, January) to avoid a penalty. The safe harbor: pay 100% of your prior year total tax liability (110% if prior year AGI exceeded $150,000) in four equal installments. This guarantees no penalty regardless of what you end up owing.