Your Guide to Self Employment Taxes in 2025

22 May, 2025
By adamtraywick

If you’re self-employed- running your own business, freelancing, doing contract work—you’ve probably heard the term “self-employment taxes.”

And if you’ve ever seen how much you owe in taxes, you’ve probably thought:

“Wait… why is this so high?”

You’re not imagining it. The tax system is a little different when you work for yourself.

And it all comes down to a little thing called self-employment tax.

Here’s how it works.

What Is Self-Employment Tax?

Let’s say you made $100,000 in your business last year. You already know you’ll pay income tax on that.

But on top of income tax, you also have to pay self-employment tax.

That’s because when you’re self-employed, the government sees you as both the employer and the employee.

Think about a regular job for a second. Your employer takes out:

6.2% for Social Security
1.45% for Medicare

And behind the scenes, your employer also pays the same amounts on your behalf.

But when you’re your own boss, you pay both sides—a total of 15.3% on your net business income.

Here’s the breakdown:

12.4% for Social Security
2.9% for Medicare

So, if you made $100,000 in profit from your business, about $15,300 would go to self-employment tax.

So… That’s On Top of Income Tax?

Yes. Sorry.

You’ll also pay regular income tax on your business profit. The self-employment tax is completely separate.

It’s like:

You’re taxed once because you earned money (income tax)
And again because you didn’t have an employer covering Social Security and Medicare for you (self-employment tax)

Is There a Cap?

A little relief: the Social Security part stops at a certain income level.

In 2025, it stops at $176,100. That means once your business income goes above that, you no longer owe the 12.4% Social Security tax on the extra.

But you still owe the 2.9% Medicare tax on everything, no matter how much you make.

And if you make over $200,000 ($250,000 if you’re married filing jointly), you pay an extra 0.9% Medicare tax on top of that.

Do I Get to Deduct Any of This?

Yes. You can deduct half of your self-employment tax when you file your taxes. It’s the government’s way of saying, “Hey, we know you’re covering both sides – here’s a little help.”

Example: If you paid $15,300 in self-employment tax, you can deduct about $7,650 as a business expense on your tax return. It won’t erase the tax, but it’ll lower your taxable income a bit.

What About Other Deductions?

If you’re self-employed, there are other tax perks you might not know about:

Health insurance premiums (if you pay for your own coverage)
Retirement plan contributions (like a SEP IRA or Solo 401(k))
HSA contributions (if you have a high-deductible health plan)

These are all “above-the-line” deductions, meaning they lower your adjusted gross income (AGI), which helps in all kinds of ways when it comes to taxes and qualifying for credits or deductions.

Can I Do Anything to Reduce This Tax?

Yes… this is where an S corporation might come in.

Let’s say your business makes $120,000 in profit. If you’re a sole proprietor, you pay self-employment tax on all $120,000.

But if your business is an S corp, you can:

Pay yourself a reasonable salary (say $60,000)
Take the remaining $60,000 as a distribution

The salary is taxed with Social Security and Medicare. The distribution is not. That could save you thousands if it’s done correctly.

Important: You can’t just skip the salary or pay yourself $10k. The IRS is watching for abuse here, so this needs to be done by the book.

Use Our Free S Corporation Tax Calculator

Want to see what kind of savings an S corp structure could offer you?

We built a free calculator to help you run the numbers. Just plug in a few details, and it’ll show you a side-by-side comparison of what you’d pay with and without an S corp structure.

👉 Try the S Corporation Tax Calculator here

It’s quick, simple, and could help you make a smart move for your business this year.