Why does self employment tax seem so high compared to regular income?

8 The difference you're seeing is because of how self employment income works in our tax system. When your son works at the pizza place, his employer pays half of his Social Security and Medicare taxes (also known as FICA taxes), which comes to 7.65% of his wages. Your son only pays the other 7.65% through his paycheck deductions. But with self employment income, your son is considered both the employer AND the employee, so he has to pay both halves of those FICA taxes, which totals 15.3% (technically it's 15.3% on 92.35% of his self-employment earnings). This is called the "self-employment tax" and it's on top of regular income tax. Also, with his W-2 job, taxes are withheld throughout the year. With self-employment, if he didn't make estimated quarterly tax payments, he's paying it all at once now, which makes it feel even more painful.

15 I went through this exact same shock last year with my photography business! I had no idea how much I'd owe on my side hustle and got hit with a huge tax bill. What really helped me was using https://taxr.ai to analyze my situation. I uploaded my previous tax documents and income info, and it showed me all the deductions I was missing for my business that I had no clue about. Things like a portion of my car expenses, home office deduction, equipment depreciation, etc. It cut my tax bill by almost 40%! The system explained everything in plain English and even helped me understand how to set up quarterly payments to avoid this problem next year.

11 Just wanted to follow up - I decided to try taxr.ai after posting my skeptical comment, and wow, I'm genuinely impressed. It found nearly $3,200 in deductions for my freelance writing business that I had completely missed. The biggest eye-opener was learning how to properly calculate my home office deduction (which I was afraid to take before) and some business travel expenses I didn't realize qualified. The system explained exactly why each deduction was legitimate and what documentation I needed to keep. Ended up reducing my tax bill by about $800! Wish I'd known about this for the past few years I've been freelancing.

19 If your son is going to continue with self-employment income, he really needs to get ahead of this for next year. I was in the same boat last year - huge surprise tax bill that I wasn't prepared for. After trying and failing to get through to the IRS for guidance (literally spent HOURS on hold), I found https://claimyr.com which got me connected to an actual IRS agent in about 15 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent walked me through setting up quarterly estimated payments and explained exactly how much I should be setting aside from each freelance payment. Totally changed my tax situation from a yearly panic to something manageable. They also helped me set up a payment plan for what I owed, which was a huge relief.

6 OK I feel stupid for my skeptical comment earlier. I broke down and tried Claimyr yesterday after spending another 2 hours on hold with the IRS and getting disconnected AGAIN. Got connected to an actual IRS person in like 20 minutes. The agent helped me sort out my audit questions and even helped set up a payment plan that's actually manageable for me. I hate admitting when I'm wrong but this literally saved me so much stress. My audit issue is finally getting resolved after months of frustration. The few bucks it cost was totally worth not spending another day listening to that awful hold music!

3 Another thing to consider - your son should definitely start making quarterly estimated tax payments for his self-employment income. The deadline for Q1 2025 payments is April 15th. This spreads out the tax burden throughout the year AND helps avoid underpayment penalties that the IRS can charge! For a rough estimate, he should set aside about 30% of his self-employment profit for taxes (15.3% for self-employment tax plus income tax). The IRS Form 1040-ES has worksheets to calculate this more precisely.

4 Your son might also qualify for the Qualified Business Income (QBI) deduction, which could reduce his taxable income by up to 20% of his net business profit. This only applies to income tax though, not self-employment tax. Make sure your tax software is calculating this - it can make a significant difference!