Can You Deduct Self-Employment Tax From Your Income?
Learn how the self-employment tax deduction works, how it affects your taxable income, and where to report it on your tax return.
Self-employment tax is an additional cost freelancers, independent contractors, and small business owners must account for when filing taxes. Unlike traditional employees who split Social Security and Medicare taxes with an employer, self-employed individuals cover the full amount. This increases their overall tax burden, but the IRS allows a partial deduction to help offset the cost. Understanding this deduction can lower taxable income and reduce the total tax bill.
Criteria for Owing This Tax
Anyone earning income through self-employment must determine whether they owe self-employment tax. In 2024, individuals with at least $400 in net earnings must pay this tax, regardless of business size.
Income subject to self-employment tax includes earnings from sole proprietorships, partnerships with active participation, and gig work such as rideshare driving or freelance consulting. Receiving a 1099-NEC or 1099-K instead of a W-2 does not exempt income. Members of an LLC taxed as a partnership must also pay self-employment tax on their share of earnings.
Certain professions have additional considerations. Clergy members must include housing allowances when calculating self-employment tax, even if those allowances are not subject to income tax. Real estate agents and direct sellers, classified as statutory nonemployees, must pay self-employment tax on their commissions.
Determining the Deductible Amount
To ease the burden of paying both the employer and employee share of Social Security and Medicare taxes, the IRS allows self-employed individuals to deduct 50% of their self-employment tax. This deduction is an adjustment to income, meaning it applies whether taxpayers take the standard deduction or itemize expenses.
The deduction is based on total self-employment tax, which is calculated from net earnings—business income minus allowable deductions. In 2024, the Social Security portion applies to earnings up to $168,600, while Medicare tax applies to all net earnings. The total self-employment tax rate is 15.3%—12.4% for Social Security and 2.9% for Medicare.
High earners must also account for the 0.9% Additional Medicare Tax on net earnings exceeding $200,000 for single filers or $250,000 for joint filers, though this additional tax is not deductible.
For example, a freelancer with $100,000 in net earnings owes $15,300 in self-employment tax (100,000 × 15.3%). The deductible portion is $7,650, reducing taxable income.
Where to Report the Deduction
Self-employed individuals claim the deduction for half of their self-employment tax on Schedule 1 of Form 1040, specifically in Part II, which covers adjustments to income. The deduction appears on line 15 of Schedule 1, and the total from this schedule flows to line 10 of Form 1040, reducing adjusted gross income (AGI).
Because this deduction is an adjustment to income rather than a business expense, it does not appear on Schedule C, which reports business income and deductions. Schedule C deductions reduce net self-employment earnings, affecting total self-employment tax owed. In contrast, the self-employment tax deduction lowers taxable income but does not change the self-employment tax calculation.
Effect on Taxable Income
Lowering taxable income through the self-employment tax deduction can impact eligibility for other tax benefits. Many deductions and credits are tied to AGI or modified adjusted gross income (MAGI), so a lower AGI can increase access to tax-saving opportunities.
For example, contributions to a traditional IRA may be deductible depending on income, and a reduced AGI could allow a taxpayer to qualify for a larger deduction. The deduction can also affect phaseout thresholds for the Qualified Business Income (QBI) deduction under Section 199A. In 2024, taxpayers with taxable income below $191,950 for single filers or $383,900 for joint filers can claim the full 20% QBI deduction.
AGI also influences the threshold for medical expense deductions, which must exceed 7.5% of AGI to be deductible. By reducing AGI, the self-employment tax deduction can make it easier to claim these expenses.