How to File Self-Employment Taxes: A Quick Guide

If you’ve landed on this page, you’re probably wondering how to tackle self-employment taxes. Filing taxes as a self-employed individual isn’t as simple as it is for regular employees. 

There’s no automatic tax withholding, so the responsibility falls entirely on you to calculate and submit payments. This means managing quarterly estimates, choosing the right forms (like Schedule C and SE), and keeping detailed records of your income and deductions year-round.

It’s easy to make mistakes—whether it’s underestimating what you owe, missing payments, or failing to track expenses accurately. These can lead to unexpected bills, cash flow issues, and penalties. Without a solid plan, handling taxes can become a challenge.

Keep reading to learn how to file self employment taxes, choose the right forms, and maximize deductions to stay compliant with your finances.

What Is Self-Employment Tax?

Self-employment tax is a mandatory payment made by self-employed individuals and small business owners to cover Medicare and Social Security contributions. Unlike traditional employees, whose FICA taxes are split between the employer and employee, self-employed individuals are responsible for paying the full amount. 

Plus, it also depends on whether you’re an employee or an employer. FICA includes Social Security and Medicare taxes, totaling 15.3%, but both the employee and employer share the cost.

Here’s How It Works in Two Ways:

1. FICA Tax for Employees and Employers:

• Under FICA, both the employer and employee share the responsibility of paying a total of 15.3% in taxes. Each contributes 7.65%.

2. SECA for Self-Employed Individuals:

• In 1954, the Self-Employed Contributions Act (SECA) was introduced to ensure that self-employed individuals also contribute to Social Security and Medicare.
• Self-employed individuals must pay the entire 15.3% tax themselves, as they do not have an employer to split the cost with.

This tax helps fund Social Security and Medicare benefits and is required for all self-employed individuals, including freelancers, independent contractors, and business owners.

Who Needs to Pay Self Employed Tax?

Knowing who qualifies helps you determine if your income type and earnings require specific tax obligations, ensuring you’re prepared and avoid unexpected tax liabilities.

Self-Employed Individuals

Anyone running their own business, including sole proprietors, independent contractors, and freelancers, who have net earnings of at least $400 in a tax year.

U.S. Citizens Employed by Foreign Governments

Must pay self-employment tax on any income earned, regardless of foreign employment status.

Employees of Churches

Individuals earning more than $108.28 as employees of a church are required to pay self-employment tax.

Freelancers with Additional Income

If you earn $1,000 or more through freelance work while also having a full-time job (where payroll taxes are withheld), you must pay self-employment tax on the net earnings from that freelance income (unless the net is under $400).

Individuals Receiving Medicare and Social Security

Regardless of age, if you meet the earnings threshold, you are still liable for self-employment tax even if you are receiving Medicare and Social Security benefits.

Self-employment tax applies even if you’re receiving Social Security or Medicare benefits. If you’re unsure about your tax status, check the IRS website or talk to a tax professional. Now that you know who needs to file, let’s have a look at how to file self employment taxes.

Don’t Miss: Do Foreigners Have to Pay Taxes? Your Guide to Foreign Earned Income 

How to File Self Employment Taxes?

Knowing how to file self-employment taxes helps you stay organized and plan your finances effectively. Here are the steps:

Calculate Your Income

• Use Schedule C (Form 1040) to calculate your net self-employment income.
• If your business expenses are $5,000 or less, you may qualify to use Schedule C-EZ instead.

Figure Out Your Self-Employment Tax

• Take the income or loss from Schedule C or C-EZ and use Schedule SE (Form 1040) to calculate how much self-employment tax you owe.

Self-Employment Taxes for Joint Filers

• If you file jointly with another self-employed person, each of you must calculate your self employed taxes separately. SECA doesn’t let joint filers combine their incomes.

Pay Estimated Taxes Quarterly

• If you anticipate owing more than $1,000 in taxes, make quarterly estimated tax payments using Form 1040-ES.
• Use your previous year’s tax return to fill out the worksheet in Form 1040-ES and see if you need to make these payments.

Pay Your Quarterly Taxes

• You can pay online using the Electronic Federal Tax Payment System (EFTPS) or by mailing the vouchers included in Form 1040-ES.

If you’re uncertain about handling it on your own and need personalized assistance, SWAT Advisors can guide you through the process of how to file self employment taxes.

Their incredible tax planning solutions for every taxpayer, including tax planning for doctors and more, can be beneficial in the long run. 

Self-Employment Tax Calculation Explained

Self-employment tax is 15.3% of your net earnings, covering Social Security and Medicare taxes.

Social Security Tax (12.4%)

This tax applies to the first $170,000 of your net income in 2024. Any earnings above this threshold are not subject to Social Security tax.

Medicare Tax (2.9%)

The Medicare tax applies to your entire net income, regardless of how much you earn..

Additional Medicare Tax (0.9%)

If your income exceeds certain thresholds, you’ll pay an extra 0.9%:

• $200,000 for single filers and heads of households.
• $250,000 for married couples filing jointly.
• $125,000 for married couples filing separately.

These rates and thresholds are adjusted annually, so it’s important to check for updates each tax year.

Additional Medicare Tax Requirements

If your self-employment income, wages, or compensation exceed certain thresholds based on your filing status, you’ll pay an additional 0.9% Medicare tax. 

This applies to income above specific amounts, which vary depending on how you file your taxes. Here are the details:

Tax Form for Self Employed Individuals

There are several key forms you need to file as a self-employed individual. Here’s a quick overview of the most common ones:

• Form 1040 – U.S. Individual Income Tax Return: This is the main tax form used by individuals to report income, deductions, and credits, covering all sources like wages, dividends, capital gains, and self-employment income.
• Form 1040-SR – U.S. Tax Return for Seniors: Designed for seniors (65+), this form is similar to Form 1040 but features a larger font and simplified format, making it easier to report retirement income, including Social Security and pensions.
• Schedule C – Profit or Loss from Business: Used by self-employed individuals, freelancers, and sole proprietors to report business income and expenses, determining net profit or loss, which is then included on Form 1040.
• Schedule F – Profit or Loss from Farming: For reporting income and expenses from farming activities, it calculates the net profit or loss to determine overall taxable income.
• Schedule SE – Self-Employment Tax: This form calculates the self-employment tax on net earnings, covering Social Security and Medicare taxes for self-employed individuals.
• Schedule K-1 – Partner’s Share of Income, Credits, Deductions: Used by partnerships, S corporations, and trusts to report each partner’s or shareholder’s share of income, deductions, and credits, which are included on Form 1040.

Unfamiliar with these forms? No problem! SWAT Advisors have experts to guide you through every step of this form. 

Additionally, they also have in-house business continuity consultants helping protect your business from disruptions, and exit planning advisors who assist in crafting a strategic and successful exit plan.

Common Self-Employment Tax Filing Mistakes to Avoid

Filing self-employment taxes can get tricky, and there are common mistakes that could lead to problems. Here are some to avoid:

1. Errors in Deductions: Calculating deductions can be complicated, and mistakes are common. Incorrect deductions may catch IRS’ attention and lead to an audit, so it’s crucial to stay accurate.
2. Underreporting Income: Estimating income for quarterly taxes is challenging for self-employed individuals. If the actual income differs from the estimate, adjustments can be made at the end of the year to correct the difference.
3. Mixing Personal and Business Expenses: Only business-related expenses should be claimed. Personal expenses cannot be deducted, and if the expense-to-income ratio seems off, the IRS may raise concerns.
4. Poor Record Keeping: Maintaining detailed records of business expenses is essential. The IRS can audit returns from the past three years or even longer if errors are found. Good record-keeping helps avoid these issues.
5. Filing Taxes Late: Filing late can result in penalties. Self-employed individuals are expected to pay quarterly taxes. But if managing taxes feels overwhelming, seeking professional help is a smart choice.

In Closing!

Handling self-employment taxes takes planning and attention to detail. Setting aside part of your income for taxes throughout the year can help you avoid cash flow issues when it’s time to pay. This way, you’re financially ready without the stress of last-minute payments.

Accounting software can also make tax filing easier by tracking your income and expenses, reducing errors and missed deductions. Plus, don’t forget you can reduce your taxable income by deducting 7.65% of your self-employment tax—just claim half of your Social Security tax on IRS Form 1040, but not on Schedule C.

Getting professional help with self-employment taxes is a smart move. With multiple forms to fill out, even a small mistake can lead to bigger issues, including penalties. SWAT Advisors can help you avoid costly errors, optimize deductions, and ensure your taxes are done right. 

They have a tax planner in California and nationwide, ensuring you make the most of available deductions and meet all tax obligations accurately. Get in touch today.