Question 1

At what income level do I have to start paying self-employment tax?

Accepted Answer

You must file Schedule SE and pay self-employment tax if your net earnings from self-employment are $400 or more in a single tax year. This is a drastically lower threshold than the standard income tax filing requirement. Even if your total income is only $500 for the entire year and you owe zero federal income tax, you are still legally required to file a return and remit the 15.3% self-employment tax on those specific net earnings.

Question 2

Do I have to pay self-employment tax if I already have a full-time W-2 job?

Accepted Answer

Yes, but with crucial limitations. You must pay the 2.9% Medicare portion on all net earnings from your side hustle, regardless of your W-2 income. However, the 12.4% Social Security portion is capped at a combined maximum ($168,600 in 2024). If your W-2 job already pays you $168,600 or more, your side hustle income is entirely exempt from the Social Security portion of the self-employment tax, and you will only owe the 2.9% Medicare tax on your freelance profits.

Question 3

How do I pay my self-employment tax to the IRS?

Accepted Answer

Self-employment tax is not paid in one lump sum at the end of the year; the IRS operates on a "pay-as-you-go" system. You must calculate your estimated combined tax liability (income tax plus self-employment tax) and make four quarterly payments using Form 1040-ES. These payments are due on April 15, June 15, September 15, and January 15 of the following year. Payments can be made electronically via the IRS Direct Pay website using a standard checking account.

Question 4

Can I deduct business expenses to lower my self-employment tax?

Accepted Answer

Absolutely. This is the most effective way to legally reduce your liability. Self-employment tax is calculated strictly on your net earnings, not your gross receipts. Every legitimate business expense you claim—such as software, advertising, mileage, home office space, and specialized equipment—directly reduces your net income. Lower net income mathematically results in a lower self-employment tax calculation.

Question 5

What happens if I don't make quarterly estimated tax payments?

Accepted Answer

If you wait until April to pay your entire tax bill, the IRS will assess an underpayment of estimated tax penalty. This penalty is essentially interest charged on the money you should have been sending them throughout the year. The exact penalty amount depends on how much you underpaid and the current IRS interest rates (which fluctuate but are often between 5% and 8%). You can avoid this entirely by meeting the Safe Harbor rule, typically by paying 100% of your previous year's tax liability in four equal installments.

Question 6

Does forming an LLC reduce my self-employment tax?

Accepted Answer

No, a standard Single-Member LLC provides zero tax benefits regarding self-employment tax. The IRS considers a standard LLC a "disregarded entity," meaning you are taxed exactly like a sole proprietor. All net profits are subject to the 15.3% rate. To reduce self-employment tax using an LLC, you must actively elect to have the LLC taxed as an S-Corporation, which requires you to run formal payroll, pay yourself a reasonable W-2 salary, and take the remaining profits as distributions exempt from FICA taxes.

Self-Employment Tax Calculator

Command Palette