Self-employment (SE) tax is 15.3% of your net earnings — 12.4% for Social Security (on income up to $176,100 in 2025) and 2.9% for Medicare. SE tax is calculated on 92.35% of net profit (not the full amount), because you can deduct the "employer-equivalent" portion. You can then deduct half of the SE tax amount from your gross income when calculating federal income tax.
If you expect to owe $1,000 or more in taxes for the year, the IRS requires quarterly estimated payments. The 2025 due dates are: April 15 (Q1), June 16 (Q2), September 15 (Q3), and January 15, 2026 (Q4). Underpaying can result in a penalty — generally 0.5% per month on the unpaid amount. Pay through IRS Direct Pay at irs.gov/payments — it's free.
The Qualified Business Income (QBI) deduction under Section 199A lets eligible self-employed individuals deduct up to 20% of qualified business income from taxable income. For 2025, the deduction begins to phase out at $197,300 (single) and $394,600 (married filing jointly). Above those thresholds, limitations apply — especially for "Specified Service Trades or Businesses" (SSTB) like law, consulting, and financial services. This calculator applies the full 20% for incomes below the phase-out threshold.
Common deductible expenses include: home office (actual expenses or $5/sq ft up to 300 sq ft), mileage (67 cents/mile for 2024, 70 cents/mile for 2025 — check IRS), health insurance premiums (100% deductible), retirement contributions (SEP-IRA: up to 25% of net earnings; Solo 401k: up to $70,000 combined for 2025), software and subscriptions, professional development, business equipment and supplies, and professional services (accountant, attorney). Keep all receipts — the IRS requires documentation.
The most effective strategies: (1) Maximize retirement contributions — a SEP-IRA contribution of $20,000 on $80,000 net income saves roughly $6,000–$8,000 in taxes; (2) Track all business mileage and expenses; (3) Set up a home office and deduct the proportional cost; (4) Consider an S-Corp election once net profit exceeds ~$60,000–$80,000 to reduce SE tax on distributions; (5) Deduct 100% of health insurance premiums you pay for yourself and family.
The Social Security wage base (the income threshold above which the 12.4% Social Security portion of SE tax no longer applies) is $176,100 for 2025. The 2026 wage base is expected to increase — the IRS typically announces it in October. The 2.9% Medicare portion applies to all net self-employment income with no cap. Above $200,000 (single) or $250,000 (married), an additional 0.9% Medicare surtax applies.