Self-Employment Tax 2025: Who Must Pay and How It Works
Understanding self-employment tax 2025 is important because self-employed taxpayers must pay both the employee and employer portions of Social Security and Medicare taxes.
The Internal Revenue Service requires these taxes to be reported using Schedule SE together with Form 1040.
Official Source Basis
This article follows guidance published by the Internal Revenue Service in the Instructions for Schedule SE (Form 1040),
the IRS Publication 334 — Tax Guide for Small Business, and the IRS Self-Employed Individuals Tax Center.
These official sources explain who must pay self-employment tax and how it is calculated and reported.
What Is Self-Employment Tax
Self-employment tax is the Social Security and Medicare tax paid by individuals who operate a trade or business as sole proprietors or independent contractors.
Employees share these taxes with employers through payroll withholding.
Self-employed individuals must pay both portions themselves.
Self-employment tax is separate from federal income tax.
Both taxes may apply to the same income and are reported on Form 1040.
Self-Employment Tax Rate for 2025
The self-employment tax rate remains based on Social Security and Medicare contributions required under federal law.
The combined rate is 15.3 percent of net earnings from self-employment.
- 12.4 percent for Social Security tax
- 2.9 percent for Medicare tax
According to IRS rules, Social Security tax applies only up to the annual wage base limit, while Medicare tax applies to all eligible earnings.
Additional Medicare Tax may apply at higher income levels as explained in IRS guidance.
Who Must Pay Self-Employment Tax in 2025
The IRS requires self-employment tax payments when net earnings from self-employment reach a minimum threshold during the year.
You generally must pay self-employment tax if:
- Your net earnings from self-employment are $400 or more during the year
- You operate a sole proprietorship or independent business
- You work as an independent contractor or freelancer
- You receive income reported on Form 1099-NEC
- You are a member of a partnership with business income
These requirements are explained in Schedule SE instructions published by the IRS.
How Self-Employment Income Is Calculated
Self-employment tax applies to net earnings rather than total business income.
Taxpayers first calculate profit or loss using Schedule C.
Business expenses reduce taxable earnings before self-employment tax is calculated.
The IRS requires taxpayers to apply an adjustment when calculating taxable self-employment earnings.
Generally, 92.35 percent of net business profit is subject to self-employment tax.
This adjustment reflects the employer-equivalent portion of payroll taxes.
How Self-Employment Tax Is Reported
Self-employment tax is calculated using Schedule SE and then reported on Form 1040.
The calculated tax becomes part of total federal tax liability for the year.
Self-employed taxpayers may deduct one-half of self-employment tax as an adjustment to income.
This deduction reduces adjusted gross income but does not reduce the self-employment tax itself.
Estimated Tax Payments for Self-Employed Individuals
Because self-employed income usually does not include withholding, many taxpayers must make quarterly estimated tax payments.
Estimated payments typically include both income tax and self-employment tax obligations.
Payment rules and calculation methods are explained in IRS Publication 505 — Tax Withholding and Estimated Tax.
Tracking payments throughout the year using the Estimated Tax Planner (#13) can help reduce underpayment penalties.
Common Self-Employment Tax Mistakes
IRS guidance highlights several common reporting issues among self-employed taxpayers.
Avoiding these mistakes helps prevent corrections or notices.
- Reporting gross income instead of net profit
- Forgetting Schedule SE when filing Form 1040
- Missing estimated tax payments
- Failing to track deductible business expenses
- Incorrect classification of contractor income
Records Self-Employed Taxpayers Should Maintain
The IRS requires taxpayers to keep records supporting income and deductions.
Organized bookkeeping improves filing accuracy and supports deductions if verification is required.
- Income statements and Forms 1099
- Expense receipts and accounting summaries
- Vehicle mileage logs when applicable
- Home office expense documentation
- Prior year tax returns
Self-Employment Tax 2025 Deadline
Self-employment tax for the 2025 tax year must be reported and paid when filing Form 1040.
According to IRS filing guidance, the deadline to file the 2025 federal tax return and pay any self-employment tax due is April 15, 2026.
Self-employed individuals may also need to make quarterly estimated tax payments during the year to avoid underpayment penalties.
Final Thoughts
Self-employment tax represents a major part of federal tax obligations for freelancers and small business owners.
Understanding who must pay and how the tax works helps taxpayers plan payments and avoid unexpected balances due.
Following official IRS guidance and maintaining accurate records remains the best approach for filing correctly in 2025.
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25 years of experience managing tax, accounting, payroll, and employment-related information portals. Editor of Accounting Portal since 2011.
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