About 13% of U.S. tax returns include self-employment tax, but participation varies significantly by state. New IRS-based data highlights where self-employment tax is most common and offers an important reminder for entrepreneurs, freelancers and home-business owners to plan ahead for estimated taxes and other obligations.
Running your own business changes the way you think about money. Revenue may come directly into your bank account without taxes being taken out first, which can make a strong month feel more profitable than it really is. Then estimated tax time arrives, and you have to send a portion of that money to the IRS.
New data puts into perspective how many Americans are dealing with that reality. An analysis of IRS data by J David Tax Law found that roughly 13% of U.S. individual tax returns include self-employment tax, with participation varying considerably from state to state.
The broader numbers are substantial. American taxpayers self-remitted more than $1.06 trillion in individual income tax payments and self-employment tax in fiscal year 2025, across more than 151 million individual returns, according to the analysis.
For entrepreneurs, freelancers, independent contractors and people building businesses on the side, however, the more useful story isn’t which state sends the most money to Washington. It is what these numbers reveal about the prevalence of self-employment — and why anyone earning income outside a traditional paycheck needs to plan for taxes differently.
Key Takeaways
- About 13% of individual U.S. tax returns in the study included self-employment tax.
- Florida had the highest share of returns paying self-employment tax, at 16.16%, followed by Tennessee and Texas.
- West Virginia had the lowest participation rate in the study at 9.36%.
- Self-employment tax is different from federal income tax. It primarily funds Social Security and Medicare.
- Self-employed people generally do not have an employer automatically withholding taxes from their business income, making tax planning particularly important.
- Many sole proprietors, independent contractors and other self-employed individuals need to make estimated tax payments during the year rather than waiting until they file a return.
- The state figures should not be interpreted as a ranking of where entrepreneurship is “best” or where entrepreneurs necessarily pay the highest tax rates.
Table of Contents
About 13% of U.S. Returns Include Self-Employment Tax
The study used the IRS Data Book for fiscal year 2025 along with IRS Statistics of Income data to examine self-remitted federal taxes and the share of tax returns reporting self-employment tax.
There is an important distinction between the two measures.
The self-remitted dollar figures come from FY2025 IRS collection and return data. The percentage of returns paying self-employment tax comes from the IRS Statistics of Income Historic Table 2 for Tax Year 2023, which was the latest data used by the researchers.
The analysis defines self-remitted taxes as individual income tax payments and SECA tax that individuals send to the IRS rather than taxes withheld by an employer. That can include estimated tax payments as well as amounts paid when a tax return is filed.
That distinction matters because someone working a traditional W-2 job generally has federal income, Social Security and Medicare taxes withheld from each paycheck. Someone running a home business, freelancing, or working as an independent contractor may instead have to calculate and pay much of those taxes personally.
The IRS explains that people who are self-employed generally must file an annual income tax return and may need to pay estimated taxes quarterly. Self-employed workers typically pay both income tax and self-employment tax.
Where Self-Employment Tax Is Most Common
Florida stood out in the study, with 16.16% of individual returns paying self-employment tax. Tennessee came in next at 15.53%, followed closely by Texas at 15.51%.
Here are the 10 states with the highest self-employment tax participation rates in the supplied analysis:
| State | Share Paying SE Tax | Self-Remitted Tax Per Return | Returns Filed |
|---|---|---|---|
| Florida | 16.16% | $10,746 | 10,857,635 |
| Tennessee | 15.53% | $4,779 | 3,086,595 |
| Texas | 15.51% | $7,864 | 13,102,599 |
| Georgia | 15.18% | $5,764 | 4,667,208 |
| New York | 14.98% | $9,936 | 9,534,135 |
| Maryland | 14.91% | $6,561 | 2,866,372 |
| Connecticut | 14.80% | $11,937 | 1,730,902 |
| Colorado | 14.64% | $7,945 | 2,903,558 |
| Vermont | 14.61% | $5,823 | 319,241 |
| New Jersey | 14.58% | $8,223 | 4,434,164 |
These figures come from the study’s state analysis.
One thing is immediately apparent: the percentage of returns paying self-employment tax and the amount of tax remitted per return are not the same thing.
Connecticut, for example, shows $11,937 in self-remitted tax per return, substantially higher than Tennessee’s $4,779, even though Tennessee has a higher percentage of returns paying self-employment tax.
That is why entrepreneurs should be careful not to interpret these figures as a simple ranking of where self-employed people pay the most tax.
States With the Lowest Self-Employment Tax Participation
At the other end of the spectrum, West Virginia had the smallest share of returns paying self-employment tax, at 9.36%.
The 10 lowest participation rates in the study were:
| State | Share Paying SE Tax | Self-Remitted Tax Per Return | Returns Filed |
|---|---|---|---|
| West Virginia | 9.36% | $2,829 | 735,629 |
| Wisconsin | 10.56% | $5,205 | 2,827,994 |
| Pennsylvania | 11.11% | $5,738 | 5,978,431 |
| Washington | 11.11% | $7,844 | 3,591,920 |
| New Mexico | 11.13% | $4,180 | 931,948 |
| Indiana | 11.24% | $4,291 | 3,128,277 |
| Delaware | 11.29% | $5,003 | 479,616 |
| Ohio | 11.67% | $4,551 | 5,440,224 |
| Michigan | 11.88% | $4,700 | 4,618,456 |
| Nevada | 12.30% | $8,919 | 1,504,124 |
Again, the dollar figures illustrate why these measures need to be kept separate. Nevada appears among the states with the lowest self-employment tax participation rates while posting $8,919 in self-remitted taxes per return.
The researchers also reported that Wyoming had the highest self-remitted amount per return nationally at $13,157, while West Virginia had the lowest at $2,829.
Those numbers don’t necessarily mean a self-employed person will face a $13,157 tax bill in Wyoming or a $2,829 bill in West Virginia. They are averages based on broader state-level IRS collection data, not estimates of what an individual business owner owes.
What Exactly Is Self-Employment Tax?
One source of confusion for new entrepreneurs is that self-employment tax and income tax are not interchangeable terms.
Self-employment tax primarily covers Social Security and Medicare taxes. The IRS lists the self-employment tax rate as 15.3%, consisting of 12.4% for Social Security and 2.9% for Medicare, subject to the applicable rules and income limits.
An employee typically sees Social Security and Medicare taxes automatically withheld from a paycheck, with the employer paying its share as well. Self-employed people generally calculate their own self-employment tax using Schedule SE (Form 1040).
That tax can exist alongside federal income tax.
This distinction catches some new business owners off guard. You can have enough money set aside for what you think will be your income tax liability but still underestimate what you actually need because self-employment tax must also be considered.
Why Estimated Taxes Matter When You Work for Yourself
Taxes in the United States operate largely on a pay-as-you-go basis. Employees satisfy that requirement primarily through withholding from their paychecks. Business owners often have to accomplish it another way.
The IRS explains that estimated taxes are used to pay taxes on income that isn’t subject to withholding, including self-employment income. Estimated payments can cover both income tax and self-employment tax.
For many people, that means sending money to the IRS during the year instead of waiting until April.
Individuals — including sole proprietors, partners and S corporation shareholders — generally have to make estimated tax payments when they expect to owe $1,000 or more when their return is filed, although the specific rules depend on the taxpayer’s circumstances.
If your home business is growing from a side project into a significant source of income, this becomes especially important. PowerHomeBiz’s guide to taking a home business from part-time to full-time discusses why taxes need to be included when calculating how much your business actually needs to earn before you rely on it for your livelihood.
Don’t Treat Every Dollar of Revenue as Spendable Income
This may be the simplest lesson from the IRS numbers, but it is one worth emphasizing.
If a client pays you $5,000, that doesn’t necessarily mean you suddenly have $5,000 available to spend personally or reinvest in your company.
Part of that money may ultimately need to cover business expenses. Another portion may need to be reserved for federal taxes, and depending on where you live and operate, there may also be state and local tax obligations.
This is one of the biggest adjustments when moving from employment into entrepreneurship. With a paycheck, much of the tax process happens before the money reaches your bank account. When you own a business, you often receive the money first and deal with the taxes afterward.
The difference can make cash flow appear healthier than it really is unless you deliberately separate tax money from operating and personal funds.
Keep Good Records From the Beginning
Tax planning also becomes much easier when bookkeeping isn’t something you try to reconstruct in March or April.
Keep accurate records of business income and legitimate business expenses throughout the year. Those records can help you determine your actual business profit, which in turn affects your tax obligations.
The IRS notes that a self-employed person’s net profit or loss is generally determined by subtracting business expenses from business income.
For home-based entrepreneurs, qualifying expenses may extend beyond obvious purchases such as inventory or advertising. Depending on the business and circumstances, deductible expenses can include certain supplies, professional services, equipment and other ordinary and necessary costs of operating the business.
PowerHomeBiz has previously covered a number of commonly overlooked business tax deductions that entrepreneurs may want to discuss with their tax adviser.
The key isn’t to chase deductions simply to lower your taxes. It is to keep records well enough to claim legitimate expenses you’re already entitled to deduct.
Working From Home May Create Additional Tax Considerations
For PowerHomeBiz readers, another area worth understanding is the home office deduction.
The IRS says a taxpayer who uses part of a home for business may be able to deduct expenses related to that business use, provided the applicable requirements are satisfied. Its self-employed tax resources specifically include guidance for home office deductions.
PowerHomeBiz also has a more detailed guide to home office tax deductions and how entrepreneurs have traditionally calculated business use of their homes.
Because tax rules change and individual circumstances vary, older tax articles should be treated as background rather than substitutes for current IRS guidance or advice from a qualified tax professional.
What the State Rankings Don’t Tell Us
State-by-state tables are interesting, but they can invite conclusions the underlying data doesn’t support.
A high percentage of returns paying self-employment tax does not automatically mean a state is more entrepreneurial, more business-friendly or more heavily taxed. Nor does a higher amount of self-remitted tax per return necessarily mean self-employed residents are paying higher tax rates.
Differences can reflect income levels, sources of income, the prevalence of self-employment, business composition and other economic factors.
The study itself makes an important limitation clear: its self-remitted tax measure does not measure IRS enforcement, audit activity or collection pressure.
That makes the figures useful as a snapshot of how tax payment patterns differ across the country, but not as a scorecard for judging one state’s business climate against another.
Tax Planning Should Grow Alongside Your Business
Jonathan Sooriash, CEO of J David Tax Law, said the state-to-state differences show how much individual circumstances can vary.
“The variation in self-remitted tax per return across states is striking.”
He advised taxpayers with substantial self-employment income or estimated-payment obligations to make sure they understand their remittance requirements and available deductions.
For entrepreneurs, that may be the most practical takeaway from the entire dataset.
A new business often begins with attention focused almost entirely on customers, revenue and growth. Taxes feel like an administrative problem for later. But as revenue increases, tax planning becomes part of running the business responsibly.
You don’t need to become a tax expert yourself. You do need to understand enough to know what records to maintain, what money shouldn’t be spent, when estimated payments may be required and when the business has become complicated enough to warrant professional assistance.
Those habits aren’t as exciting as landing a new client or hitting a revenue milestone, but they can keep a successful month from turning into an unpleasant surprise when tax season arrives.
Frequently Asked Questions
What is self-employment tax?
Self-employment tax primarily consists of Social Security and Medicare taxes for people who work for themselves. The current statutory rate is 15.3%, consisting of 12.4% for Social Security and 2.9% for Medicare, although income limits and other rules affect how the tax is calculated
Who generally has to pay self-employment tax?
According to the IRS, people may be considered self-employed if they operate as sole proprietors or independent contractors, are members of partnerships carrying on a business, or are otherwise in business for themselves, including certain part-time businesses and gig work. The IRS generally requires a return when net earnings from self-employment are $400 or more, although other filing requirements can apply even below that amount.
Is self-employment tax the same as income tax?
No. Self-employment tax generally refers to Social Security and Medicare taxes. A self-employed individual may owe federal income tax in addition to self-employment tax.
Do self-employed people have to pay taxes quarterly?
Many do. Sole proprietors, partners and S corporation shareholders generally need to make estimated payments if they expect to owe $1,000 or more when filing their tax return, although there are exceptions and additional rules.
Which state has the highest percentage of returns paying self-employment tax?
In the J David Tax Law analysis, Florida had the highest share at 16.16%, followed by Tennessee at 15.53% and Texas at 15.51%.
Can home-based business owners deduct home office expenses?
Potentially. The IRS allows qualifying self-employed taxpayers to deduct certain expenses connected with the business use of a home, subject to specific eligibility requirements. Business owners should review current IRS rules or consult a qualified tax professional before claiming the deduction.
