How does tax work for self-employed Americans?

As a self-employed person in the USA, you pay two main federal taxes: (1) Self-Employment (SE) Tax and (2) Federal Income Tax — both on your net profit (total revenue minus allowable business expenses). You report your business income and expenses on Schedule C, which is attached to your Form 1040 individual return. Your net profit from Schedule C flows through to your 1040 and is taxed at your ordinary income tax rate. Self-Employment Tax is 15.3% on the first $176,100 of net SE income in 2025 (12.4% Social Security + 2.9% Medicare), plus 2.9% on all income above that threshold. You pay both the employer and employee portions — unlike W-2 employees who split it 50/50 with their employer. Because no employer withholds tax from your income, you are generally required to pay estimated taxes quarterly using Form 1040-ES — due in April, June, September, and January. The good news: you can deduct half your SE Tax, your health insurance premiums, retirement contributions, and all ordinary and necessary business expenses — significantly reducing your taxable income.

  • Pay SE Tax (15.3%) + Federal Income Tax on net Schedule C profit
  • Deduct all ordinary and necessary business expenses on Schedule C
  • Quarterly estimated tax payments via Form 1040-ES
  • Deduct half of SE Tax and health insurance premiums above-the-line
  • All 50 states + DC have state income tax rules (except 9 states with no income tax)

Related Questions

  • When does the US tax year start and end?
  • How do I complete Schedule C as a self-employed person?
  • What is Self-Employment Tax and how is it calculated?
  • How do quarterly estimated taxes work for the self-employed?