The Self-Employment Tax: What It Is and Why It Matters
Self-employed people pay a 15.3% self-employment (SE) tax on net self-employment income — this is the combined Social Security (12.4%) and Medicare (2.9%) tax that employees split with employers. As a freelancer, you pay both the employee and employer share. On $80,000 of net SE income, that's $11,304 in SE tax alone — before federal or state income taxes.
You can deduct half of your self-employment tax (the "employer" portion) as an above-the-line deduction on your federal return. On $80,000 net SE income: SE tax = $11,304. Half = $5,652 deducted from income before calculating federal income tax. At 22% bracket, this saves $1,243 in federal income tax. The deduction is automatic — claim it on Schedule 1 of Form 1040.
2025 Quarterly Tax Deadlines
| Quarter | Income Period | Payment Due |
|---|---|---|
| Q1 2025 | January – March | April 15, 2025 |
| Q2 2025 | April – May | June 16, 2025 |
| Q3 2025 | June – August | September 15, 2025 |
| Q4 2025 | September – December | January 15, 2026 |
Miss these deadlines and the IRS charges an underpayment penalty — currently around 8% annualized. The penalty applies even if you pay your full annual tax by April 15. Pay quarterly.
Top Tax Deductions for Self-Employed People
- Home office deduction — $5/sq ft up to 300 sq ft ($1,500 simplified method), or proportional share of all home costs. Space must be used regularly and exclusively for business.
- Health insurance premiums — 100% of premiums for yourself, spouse, and dependents deducted above-the-line. One of the most valuable SE deductions.
- Retirement contributions — Solo 401k (up to $70,000 in 2025 combined), SEP IRA (up to 25% of net SE income). Dual benefit: reduces taxes now AND builds retirement wealth.
- Business vehicle mileage — 70 cents per mile for 2025 business driving. Keep a mileage log.
- Technology and subscriptions — Business portion of phone, internet, software, tools.
- Professional development — Courses, books, certifications, conferences related to your current business.
Retirement Accounts: Your Biggest Tax Lever
A freelancer earning $95,000 net can contribute up to $23,500 as the "employee" to a Solo 401k, plus up to 25% of compensation as the "employer" contribution. Total potential: $46,000+ in pre-tax retirement contributions — saving $10,120+ in federal taxes at a 22% effective rate. No other tax strategy comes close to this leverage for self-employed people.