If you’re a sole proprietor in the United States, you’re not just responsible for income tax—you must also pay self-employment (SE) tax. This tax covers your contributions to Social Security and Medicare, which are typically withheld automatically for employees. For the self-employed, this tax is calculated and reported using Schedule SE (Form 1040). In this blog, we’ll break down everything you need to know about self-employment tax in 2025 and why Schedule SE is essential for U.S. freelancers, gig workers, and small business owners.
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📌 What Is Self-Employment Tax?
Self-employment tax is a mandatory tax that covers both the employer and employee portions of Social Security and Medicare taxes. As a sole proprietor, you must pay this tax on your net earnings from business—even if you don’t owe any income tax.
The current self-employment tax rate for 2025 is:
- 12.4% for Social Security (on the first $168,600 of earnings)
- 2.9% for Medicare (no income cap)
- 0.9% additional Medicare tax if your income exceeds $200,000 (single) or $250,000 (married filing jointly)
🧾 What Is Schedule SE (Form 1040)?
Schedule SE is used to calculate how much self-employment tax you owe based on your net profit from Schedule C. The result flows into Form 1040, Line 23 as “Other Taxes.”
You may also claim an adjustment for half of your self-employment tax on Schedule 1, Line 15, which reduces your adjusted gross income (AGI).
🛠️ Step-by-Step: How to Fill Out Schedule SE
Step 1: Calculate Net Earnings
Take your net profit from Line 31 of Schedule C. Multiply that number by 92.35% (0.9235) to find your net earnings subject to self-employment tax.
Step 2: Apply SE Tax Rates
Multiply your net earnings by 15.3% (combined Social Security and Medicare) to compute your SE tax.
Step 3: Enter the SE Tax on Form 1040
Transfer the final SE tax to Form 1040, Line 23.
Step 4: Claim Your Deduction
Deduct 50% of the SE tax on Schedule 1, Line 15. This helps reduce your AGI and taxable income.
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📊 Example Calculation
| Step | Amount ($) |
|---|---|
| Net profit from Schedule C | $50,000 |
| 92.35% of net profit | $46,175 |
| Self-employment tax (15.3%) | $7,063.78 |
| Deduction (50%) | $3,531.89 |
💼 Who Needs to File Schedule SE?
- Anyone with net earnings of $400 or more from self-employment
- Freelancers, gig workers, independent contractors, and sole proprietors
- Church employees with wages of $108.28 or more (special rules apply)
📅 Deadlines for 2025
- April 15, 2026: File Form 1040 with Schedule SE
- Estimated Tax Payments: April 15, June 15, Sept 15, Jan 15 (2026)
🧠 Common Mistakes to Avoid
- Not filing Schedule SE when required
- Forgetting to claim the 50% deduction
- Using gross instead of net profit for calculations
- Missing estimated tax deadlines
📚 Related IRS Forms
✅ Final Thoughts
For U.S. sole proprietors, self-employment tax is a major component of your annual tax liability. Understanding how to calculate and report it using Schedule SE can save you from IRS penalties and help you claim the deductions you’re entitled to. Be sure to track your earnings, pay estimated taxes, and file Schedule SE correctly with your 2025 tax return.
This guide is intended for informational purposes for U.S. sole proprietors. Consult a tax professional for personalized advice.
