What is the self-employment tax rate?
The self-employment tax rate is 15.3%. That’s 12.4% for Social Security and 2.9% for Medicare. If you work as a W-2 employee, your employer picks up half and you pay the other half through payroll withholding. When you’re self-employed, you’re responsible for both halves.
The 12.4% Social Security portion only applies up to the wage base limit, which is $176,100 for 2025. Any net self-employment income above that threshold is only subject to the 2.9% Medicare tax. If your net income passes $200,000 as a single filer or $250,000 if married filing jointly, you’ll also owe an additional 0.9% Medicare surtax on the amount over that threshold.
You do get a partial break. The IRS lets you deduct the employer-equivalent portion of your self-employment tax (7.65%) as an adjustment to income on your personal return. This lowers your adjusted gross income, which can reduce your income tax. It doesn’t reduce the self-employment tax itself, but it helps on the income tax side of things.
What a lot of self-employed contractors and trades business owners overlook is that self-employment tax is calculated on your net profit. That means every dollar of legitimate business expense you fail to track increases your taxable income by that dollar, and 15.3 cents of every one of those dollars goes straight to SE tax on top of your regular income tax. A $10,000 expense you forgot to record costs you $1,530 in self-employment tax alone. Having a Long Beach bookkeeper keeping your books clean throughout the year means you’re actually capturing those deductions instead of leaving money on the table.
For business owners with steady net income above roughly $50,000 to $60,000, electing S-corp status is one of the most effective ways to reduce self-employment tax. As an S-corp owner, you pay yourself a reasonable salary that’s subject to payroll taxes, and the remaining profit passes through as a distribution that is not subject to SE tax. The savings can add up to thousands per year, but the salary has to be reasonable and defensible if the IRS ever looks at it.
Whether it’s making sure your expense tracking is tight or evaluating whether your entity structure still makes sense, tax strategy is worth thinking about if self-employment tax is taking a bigger bite than it should. Most self-employed business owners overpay because they either miss deductions or haven’t explored the structural options available to them.
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More Questions
What happens if I miss a quarterly tax payment?
The IRS charges an underpayment penalty that works like interest on what you should have paid. It's not catastrophic, but the longer you wait, the more it costs. Pay what you can as soon as you can to minimize the damage.
Read answerHow do I pay quarterly taxes to the IRS?
Make estimated tax payments four times a year using IRS Direct Pay or EFTPS. The due dates are April 15, June 15, September 15, and January 15. Base each payment on your expected annual tax liability or your prior year's total tax.
Read answerShould I track mileage or use actual vehicle expenses?
It depends on the vehicle and how you use it. For contractors and trades businesses driving trucks, actual expenses often save more. But both methods require solid mileage records.
Read answerWhat records do I need to keep for my contracting business?
Keep income records, expense receipts, job-related documents, payroll files, subcontractor paperwork, and vehicle logs. Most records should be kept for at least three to seven years depending on the type.
Read answerHow do I report subcontractor payments to the IRS?
You report subcontractor payments using Form 1099-NEC for anyone you paid $600 or more during the year. The form is due to both the IRS and the subcontractor by January 31. Collect a W-9 from every sub before you pay them.
Read answerWhat is the IRS standard mileage rate this year?
The 2025 IRS standard mileage rate for business use is 70 cents per mile. You can use this rate instead of tracking actual vehicle expenses, and it covers gas, insurance, depreciation, and maintenance.
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