Self-Employment Tax Credits and Deductions

Did you know you can leverage self-employment tax credits to reduce your tax burden if you’re self-employed? For instance, the Earned Income Tax Credit (EITC) and the Clean Vehicle Tax Credit.

On top of this, you can also claim half of what you pay in Social Security and Medicare as an income tax deduction. Each year, you can claim half of what you pay in Social Security and Medicare as an income tax deduction. 

What is self-employment tax?

Self-employment tax is how individuals who work for themselves meet their Social Security and Medicare obligations. It covers individual and payroll taxes, with 12.4% of your income going to Social Security while 2.9% contributes to Medicare as of 2024.

Exemptions from self-employment tax are rare, but paying it qualifies you for an income tax deduction.

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Qualifying for the self-employed tax credits

The self-employment tax deduction is available to freelancers, gig workers, small business owners, and others who pay self-employment tax. To qualify, you need to file Form 1040 and Schedule SE. From there, you can deduct from your income tax liability.

The Earned Income Tax Credit (EITC)

If you’re a self-employed worker with an income below the EITC income threshold, you qualify for EITC. 

For example, in 2024, the credit provided $632 to those without children and $7,830 to those with 3+ children. The maximum credit amounts in 2025 range from $649 for those without children and up to $8,046 for those with three or more children. 

It might reduce your tax burden or result in a tax refund. However, determining the exact value of each deduction can be complex. Talking to a tax professional is the best way to understand tax laws and determine how much you can save.

Clean Vehicle Tax Credit for businesses and individuals

The U.S. federal government offers tax credits for purchasing specific all-electric, plug-in hybrid, and fuel-cell electric vehicles to encourage the adoption of environmentally friendly cars. 

If you bought a qualifying vehicle in 2023 or later, you could be eligible for a federal income tax credit of up to $7,500 per car.

The process for claiming the tax credit differs depending on whether you’re applying as an individual or a business. Additionally, not all clean vehicles qualify, and the eligibility rules have changed over time.

Who can apply for the Clean Vehicle Tax Credit?

• Individuals can apply for the tax credit when purchasing a new or used qualifying clean vehicle.
• Businesses and companies, including partnerships and S corporations, may apply for the commercial clean vehicle tax credit when purchasing or leasing a new vehicle for business use. Businesses can’t get a tax credit for buying a used car. 

How to qualify for the Clean Vehicle Tax Credit?

To claim the credit, many conditions apply:

• The car must be purchased for your own use (not resale).
• It must be primarily used in the U.S.
• Only specific vehicle models qualify based on factors such as battery capacity, weight, and retail price.
• The dealer must provide documentation confirming that the vehicle meets tax credit qualifications.
• The dealer is also required to register the sale with the IRS online.
• Buyers should request a copy of the IRS's confirmation that the dealer has successfully submitted a “time-of-sale” report.

Always check the IRS website for the most up-to-date list of eligible vehicles.

Income limits for individuals

If you get the car as an individual, your modified adjusted gross income (AGI) can’t exceed the following thresholds, in order for you to qualify for the credit:

• $300,000 for married couples filing jointly or surviving spouses
• $225,000 for heads of households
• $150,000 for all other filers

Can you get a credit for leasing or buying a used car?

Used clean vehicles: Individuals can claim a tax credit if purchasing a qualifying used electric vehicle.
Leased vehicles: Businesses can apply for a tax credit when leasing clean cars, but individuals generally cannot.

Different rules for past purchases

The credit details changed on Jan. 1, 2023, so the rules differ depending if you got your car before 2022, in 2023, or after 2023. 

The rules described above apply to cars bought between 2024 to 2032, if you already bought an all-electric, plug-in hybrid, or fuel-cell electric vehicle, you might still be eligible for tax credits.

The IRS website provides a complete list of credit requirements for clean vehicle cars, qualifying cars, and which forms to use depending on your situation.

Other tax breaks and deductions

Besides these specific tax credits, it’s also worth mentioning some of the deductions that apply to self-employed individuals.

Business-related tax deductions

Even if you don’t consider yourself a business owner, the law does. As such, you’re eligible for deductions for traditional business expenses. 

• Home office use: If you use part of your home as an office, you can deduct a proportionate share of certain home expenses.
• Startup costs: You can deduct up to $5,000 of your business startup costs from your taxable income. 
• Interest: If you financed your business with a loan, you can deduct the interest from your taxable income.

Insurance deductions

• Retirement plan contributions: Many retirement contributions are deductible from your taxes.
• Health insurance premiums: If you don’t have health insurance through an employer or a spouse’s employer, you can deduct your insurance costs from your taxes.
• Business insurance: Business-related insurance expenses are deductible for self-employed individuals.

Expense-related deductions

• Education: Business-related education and training expenses are deductible. 
• Meals: If you avoid excessively glamorous meals, you can deduct 50% of business meal expenses.
• Business travel: Deduct travel expenses related to business. Read more about small business travel expenses in our dedicated article.
• Vehicle use: Deduct mileage or actual expenses for using your vehicle for business purposes. See how to in our guide on self-employed mileage deductions.

Foreign earned income exclusion (FEIE)

Self-employed digital nomads and expats may qualify for FEIE. There are several criteria to pass, such as having a foreign tax home on account of legal residency or physical presence. But if you pass these criteria, you can exclude six-figure sums from your income tax figures. 2024, you could exclude $126,500 from your income taxes via the Foreign Earned Income Exclusion. In 2025, this amount is $130,000.

Keep in mind, however, that this exclusion only covers income taxes. If you made $100,000 in self-employment income and nothing else, you could exclude it with FEIE. But this wouldn’t affect your self-employment tax burden, which would still amount to $15,300.

How much self-employment tax is deductible?

Self-employed individuals can deduct half of their self-employment tax when calculating their adjusted gross income. 
This deduction, although not a credit, reduces your taxable income. If you earned $80,000, you would pay $12,240 in self-employment tax. But then, you could deduct $6,120 from your income tax liability. This deduction would reduce your tax burden by more than $1,000.

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