I’m Self-Employed, Do I Have to Pay Social Security Taxes?

“Do I need to pay Social Security taxes?” It's a common question among freelancers, entrepreneurs and independent contractors, for good reason. The IRS doesn’t make navigating taxes easy, and self-employed individuals have double the taxes to deal with.

Every 1099 worker has to pay SE tax if they make more than $400 in 1099 income a year.

Paying self-employment taxes means dealing with both Medicare and Social Security taxes. Unlike W-2 jobs where Social Security taxes are a shared responsibility, you've got to handle both sides of the equation.

What is the Social Security tax rate for 1099 workers?

When you're on someone else's payroll, Social Security taxes come out of your paycheck like clockwork – 6.2% of it, to be exact. There’s also a cap on taxable income, set at $160,200 in 2023 and increasing to $168,600 in 2024.

But it’s a different story for the self-employed – because you're both the boss and the worker. You make a 12.4% contribution from your earnings. If we break it down, it's your 6.2% as the employer and another 6.2% as the employee. That, along with 2.9% of your income for Medicare taxes brings us to a SE tax rate of 15.3%.

Most self-employed individuals also don’t get regular paychecks, so they have to pay tax on a quarterly basis, through estimated taxes. These payments are reported with Form 1040-ES, which you’ll only need to file once during tax season.

Schedule SE is where you’ll calculate your owed Social Security liability. This info matters because it influences the Social Security benefits you'll get later on.

Remember that you don’t have to manually calculate taxes on Social Security anymore, many online calculators do the work for you.

How can I lower Social Security taxes?

A 15.3% tax rate may seem steep, but here's a silver lining for the self-employed: you can reduce your taxable income by deducting the employer portion of the tax (7.65%) as an adjustment to income. This is a separate benefit from claiming standard or itemized deductions, open to all taxpayers.

Apart from this, you can also write off any ordinary and necessary business expenses as tax deductions. If you link your expenses to FlyFin, A.I. can do all the work for you by scanning your receipts and finding every business deduction. CPAs are also available for unlimited tax support.

You can subtract all your 1099 tax deductions from your gross income when calculating SE tax. This will give you your earned income (business profit or loss) that you will then report on Schedule C.

Do self-employed individuals get Social Security benefits?

Yes, they do! Like every taxpayer who contributes to Social Security, 1099 workers also receive benefits at retirement age. Your Social Security benefits hinge on your contributions over working years and your total lifetime earnings.

The Social Security Administration calculates your benefits by averaging your monthly income across your top 35 earning years. This calculation forms your primary insurance amount, serving as the foundation for your monthly benefit payments.

Sometimes, you might think about passing up a few business tax deductions to potentially increase your future Social Security benefits. You definitely wouldn’t be the first to consider it.

Generally, 1099 workers with lower earnings end up with higher Social Security benefits.

But the future of Social Security benefit payments remains uncertain. A lot of taxpayers are concerned about potential benefit decreases due to increasing underfunding. So, it may be in your best interest to opt for a lower tax liability right now.

One thing you can do is withdraw funds from your business and put them into a retirement plan. This way, you still have greater control over your money and are using it to secure your future. So, to deduct or not to deduct? It's a decision that is totally up to you.