Gig Workers and Freelancers: Your Self-Employment Tax Could Go Up in 2024

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Self-employment tax can take a big bite out of your income — and it could be even costlier next year. Keep reading to find out why. 

If you’re a gig worker or freelancer, you’re technically considered to be self-employed — even if all of the work you do is for the same company. This means that you are an employee, but you play the role of “employer” as well. And that means you’re probably going to have to pay self-employment tax.

The IRS just announced its 2024 updates to tax brackets and other figures that are adjusted annually for inflation. One of the most significant updates gig workers and freelancers need to know about is the Social Security taxable maximum earnings, which could have big implications for your self-employment tax.

How self-employment tax works: The quick version

Most workers in the United States are required to pay taxes to help fund Social Security and Medicare. The Social Security tax rate is 6.2% of all earned income up to a certain limit, and the Medicare tax rate is 1.45% of all earned income, with no limit.

If you work in traditional employment — meaning that you get a W-2 at the end of the year — you pay Social Security and Medicare tax according to these rates, and your employer also contributes an equal amount to these programs. But if you’re self-employed, you’re both the employer and the employee.

As such, self-employed individuals are required to pay both the employer and the employee sides of these taxes. This is collectively known as self-employment tax.

The big self-employment tax change for 2024

In 2023, the self-employment tax is structured as follows:

15.3% of the first $160,200 in net self-employment income (Social Security and Medicare)2.9% of any income in excess of $160,200 (Medicare only)

But the threshold for the 15.3% — which is officially known as the Social Security contribution and benefit base — is adjusted upward for inflation every year. In 2024, the contribution and benefit base, which is the maximum amount of income Social Security tax can be applied to, is rising by $8,400 to $168,600.

It’s also worth mentioning that if you are a gig worker or freelancer in addition to W-2 employment, the contribution and benefit base refers to all of your earned income. For example, if you earn $100,000 from W-2 employment in 2023, a maximum of $160,200 in self-employment income is subject to the full 15.3% self-employment tax rate.

What it could mean to you

If you are a relatively high earner with self-employment income, this could result in a big tax increase in 2024. In fact, the $8,400 bump in the contribution and benefit base translates to an additional $1,041.60 in self-employment tax for individuals with more than $168,600 in net self-employment income.

Unlike with federal income tax, there are no deductions or credits that will reduce your self-employment tax. You could potentially create an S-corporation and pay yourself a salary from it to lower your self-employment tax, and if you’re a high-earning freelancer or gig worker, you might want to discuss this option with a financial planner or accountant.

Another effective strategy could be to ensure that you’re properly recording and claiming all of your business expenses (again, talk to a tax or financial professional), as self-employment tax is only assessed on net self-employment income, and business expenses lower this figure.

The bottom line is that there are some ways to potentially lower your self-employment tax, but even if you can’t, it’s important to know what to expect for next year so you can plan your estimated tax payments and other tax strategies.

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