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Self-Employment Tax 2025 – Rates, Deductions & Optional Methods
Self-employment tax (SE tax) applies when you earn $400 or more from self-employment. You’re considered self-employed if you operate a trade or business as a sole proprietor (including farmers) or a general partner in a partnership. The IRS uses SE tax to collect your Social Security and Medicare contributions.
What Is Self-Employment Tax?
Self-employment tax consists of the Social Security and Medicare taxes typically paid by both an employee and employer. As a self-employed individual, you must pay both halves yourself. If you owe the Additional Medicare Tax, that amount is also paid by you—not an employer.
2025 Self-Employment Tax Rates
- Social Security portion: 12.4% of net earnings
- Medicare portion: 2.9% of net earnings
- Additional Medicare tax: 0.9% on income over $200,000 ($250,000 MFJ / $125,000 MFS)
Maximum earnings subject to Social Security tax: $176,100 for 2025. There is no earnings limit for Medicare tax.
Deduction for Self-Employment Tax
You can deduct one-half of your SE tax on your Form 1040. This deduction does not affect your net earnings from self-employment—it simply reduces your taxable income for income tax purposes.
How to Calculate Self-Employment Tax
Only 92.35% of your net earnings from self-employment are subject to SE tax. The tax is calculated on Schedule SE (Form 1040). Here’s an example:
- Net self-employment income: $100,000
- Multiply by 92.35% = $92,350
- Multiply by 15.3% = $14,130 (SE tax)
- Deduct half ($7,065) as an adjustment to income on Schedule 1 (Form 1040)
Optional Methods for Low Income or Losses
If you have low earnings or a loss, you may use one or both optional methods to calculate SE tax. Doing so can help you qualify for Social Security coverage or increase certain tax credits.
Nonfarm Optional Method
- Available if you were self-employed regularly and had $400+ in earnings in at least two of the previous three years.
- Net nonfarm profits must be less than $7,840 (2025) and less than 72.189% of gross nonfarm income.
- May be used for up to five years total (not necessarily consecutive).
Farm Optional Method
- Gross farm income $10,860 (2025) or less, or
- Net farm profits less than $7,840 (2025)
There is no limit on how many years the farm optional method can be used. Note: Using optional methods may increase your SE tax but may also increase Social Security benefits.
Other Common Self-Employment Tax Situations
- Hobby income: Not subject to SE tax if not conducted for profit.
- Partnership income: Guaranteed payments and general partner income are subject to SE tax.
- USDA program payments: Generally taxable, except certain CRP payments to nonfarmers.
- Community property states: The spouse who earns the income pays SE tax, even if state law splits earnings.
- Rental real estate: Not subject to SE tax unless substantial services are provided (e.g., hotel or short-term rental).
- Notary public income: Exempt from SE tax.
- Corporate director fees: Subject to SE tax.
- Church employees: SE tax due on wages exceeding $108.28 if the employer is exempt from FICA taxes.
- Ministers and religious workers: SE tax due on salaries and housing allowances unless exempt.
- Children: Minors under 18 delivering newspapers or performing domestic services for parents are exempt from SE tax.
Download the 2025 Self-Employment Tax Guide or contact us to ensure you’re calculating and reporting self-employment tax correctly.