What is the self-employment tax and how do I minimize it?

Self-employment (SE) tax covers Social Security (12.4%) and Medicare (2.9%) on your net self-employment income — totaling 15.3% up to the Social Security wage base ($176,100 in 2025), then 2.9% above it. W-2 employees split this with their employer; as self-employed, you pay both halves. You can deduct 50% of the SE tax on your personal return (Form 1040, Schedule 1). To minimize SE tax: (1) Elect S-Corp status if your net profit is consistently above ~$60,000–$80,000; you pay yourself a 'reasonable salary' (subject to payroll taxes) and take remaining profit as a distribution (not subject to SE tax). (2) Maximize pre-tax deductions for business expenses, home office, vehicle use, and health insurance premiums.