If you earn money as a freelancer, consultant, gig worker, or sole proprietor, you pay self-employment tax on top of regular federal income tax. This catches many first-time 1099 earners off guard because W-2 employers withhold Social Security and Medicare automatically. Self-employed workers must handle it themselves.
Self-employment tax is 15.3% on net earnings: 12.4% for Social Security (up to the annual wage base) and 2.9% for Medicare (plus a 0.9% surtax on high earners). You pay both the employee and employer portions because you are both.
What income is subject to SE tax
Self-employment tax applies to net profit, gross 1099 or Schedule C income minus allowable business expenses. If you earn $80,000 in freelance revenue but deduct $20,000 in expenses, SE tax is calculated on $60,000.
W-2 wages and investment income are not subject to self-employment tax. If you have both a day job and side freelance income, you pay FICA on wages through withholding and SE tax only on the freelance net profit.
The Social Security portion caps at the wage base ($184,500 in 2026). If you already hit that cap through W-2 wages, you only owe the Medicare portion on additional self-employment income.
The SE tax deduction
You can deduct half of your self-employment tax when calculating adjusted gross income. This does not eliminate SE tax, it reduces the income subject to federal income tax.
On $60,000 of net self-employment income, SE tax is roughly $8,478. You deduct about $4,239 above the line, which lowers your taxable income for federal purposes.
Business expenses, retirement contributions (SEP-IRA, solo 401k), and health insurance premiums for self-employed workers provide additional deductions that reduce both income tax and SE tax bases.
Quarterly estimated tax payments
The IRS expects self-employed workers to pay taxes throughout the year via quarterly estimated payments (Form 1040-ES). Due dates are typically April 15, June 15, September 15, and January 15 of the following year.
A common rule of thumb: set aside 25–35% of net self-employment income for federal taxes, depending on your total income, state taxes, and deductions. High earners in high-tax states may need more.
Underpayment penalties apply if you owe more than $1,000 at filing and did not pay enough through withholding or quarterly estimates. Safe harbor: pay at least 100% of last year's tax (110% if AGI exceeds $150,000).
Planning tips for 1099 earners
Track business expenses in real time. Software, home office, mileage, professional development, and health insurance can meaningfully reduce net self-employment income.
Consider a SEP-IRA or solo 401(k) to shelter income. A solo 401(k) allows up to $23,500 in employee deferrals plus employer profit-sharing contributions.
If you also have W-2 income, increase withholding at your day job to cover expected SE tax on side income instead of managing separate quarterly payments.
Estimate your self-employment taxes
Enter your W-2 wages, 1099 income, business expenses, and deductions in the tax estimator to see federal income tax, SE tax, FICA, and take-home pay in one view.
Model different income levels and deduction scenarios before year-end to avoid surprises at tax time.