Self-Employment Tax Basics for Freelancers
If you earn 1099 income, you owe more than income tax — here's how self-employment tax actually works.
What self-employment tax is
When you're an employee, you pay 7.65% in Social Security and Medicare (FICA); your employer pays another 7.65%. When you're self-employed, you pay both halves — about 15.3% — on top of income tax. This is self-employment (SE) tax.
Quarterly estimated payments
Without employer withholding, you're expected to pay quarterly estimated taxes (April, June, September, January). Underpayment can trigger penalties even if you pay in full at filing time.
Deduct half of SE tax
You can deduct half of self-employment tax as an above-the-line deduction. Doesn't make the tax disappear but partially evens out the employee/employer asymmetry.
Track every legitimate expense
Home office (if exclusive use), business mileage, software subscriptions, professional development, half of qualifying meals, equipment, internet/phone share — these reduce taxable income and SE tax. Use accounting software from day one.
The QBI deduction
Eligible self-employed taxpayers can deduct up to 20% of qualified business income. Income limits apply; certain service businesses face additional restrictions. Often worth a consult with a tax professional.
S-corp election eventually
Once self-employment net income consistently exceeds roughly $80,000–$100,000, an S-corp election can reduce SE tax. Adds compliance complexity — talk to a CPA before electing.
Frequently asked questions
Do I need a separate business account?
Strongly recommended. Mixing personal and business finances is the fastest way to create a tax nightmare.
Should I pay estimated taxes if I'm new?
Yes — most freelancers underestimate their tax bill in year one. Setting aside 25–30% of every payment is a safer default.
Can I deduct health insurance?
Yes — self-employed health insurance is generally above-the-line deductible if you're not eligible for an employer or spouse's plan.