When you are self-employed, you pay both halves of Social Security and Medicare tax yourself. Combined, this is 15.3% of your net business income up to $176,100 (2025 Social Security wage base), then 2.9% Medicare only above that. On top of that, you still owe regular income tax. The combination is why many self-employed people are caught off guard by their first large tax bill.
Quick example: If your business nets $70,000, expect roughly $9,891 in self-employment tax alone, before income tax is factored in.
The IRS collects taxes throughout the year, not just in April. If you expect to owe $1,000 or more, you are generally required to make estimated payments four times a year: April 15, June 15, September 15, and January 15.
Missing these can result in underpayment penalties even if you pay the full balance when you file. Use our calculator to estimate what you owe each quarter.
A standard LLC taxed as a sole proprietor means all net income is subject to self-employment tax. An S-Corp election changes this: you pay yourself a reasonable salary subject to FICA payroll taxes, and take remaining profit as a distribution that avoids both FICA and self-employment tax entirely. The math usually works in your favor once net profit consistently exceeds roughly $60,000 to $80,000, but it varies by state, salary level, and overhead costs.
Both reduce your taxable income in the current year and are among the highest-return financial decisions available to self-employed business owners.
A free consultation gets you advice that actually fits your business.
Schedule a Free Consultation