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Self-Employment Tax: Rates, Rules, and How to Calculate It
Self-employment tax is a 15.3% federal tax that self-employed people pay to fund Social Security and Medicare, covering both the employee and employer shares that a W-2 worker splits with a company. It applies to net earnings of $400 or more and is reported on Schedule SE with your Form 1040. The 15.3% breaks down as 12.4% for Social Security (capped) plus 2.9% for Medicare (uncapped).
The tax exists because payroll taxes normally come from two sides. An employee pays 7.65% through withholding, and the employer matches it with another 7.65%. When you work for yourself, you are both parties, so you owe the full 15.3%. Two offsetting provisions, the 92.35% factor and the half-tax deduction, keep the burden roughly in line with what an employee and employer pay together.
What is self-employment tax?
Self-employment tax (SE tax) is the Social Security and Medicare tax paid by people who work for themselves, defined under the Self-Employment Contributions Act (SECA). It replaces the FICA taxes an employer would otherwise withhold and match. The combined rate is 15.3% on net earnings, and it funds the same trust funds as employee payroll tax.
SE tax is separate from income tax. You can owe SE tax even in a year with little or no income tax liability, because it is calculated on business earnings rather than on your total taxable income after deductions. It is figured on Schedule SE and added to your total tax on Form 1040.
Who pays it: sole proprietors, independent contractors, single-member LLC owners, general partners in a partnership, and gig workers. S corporation shareholders do not pay SE tax on their share of corporate profits, though they must pay themselves reasonable W-2 wages that carry ordinary FICA tax. For a side-by-side look at how each structure is taxed, see the business entity comparison.
The 15.3% self-employment tax rate, broken down
The 15.3% self-employment tax rate has two parts: a 12.4% Social Security portion that applies only up to an annual wage base, and a 2.9% Medicare portion with no ceiling. High earners add a 0.9% Additional Medicare Tax above a filing-status threshold. Each part is calculated on your net earnings after the 92.35% adjustment.
For 2026, the Social Security wage base is $184,500, up from $176,100 in 2025. Once your combined Social Security wages and SE earnings reach that base, the 12.4% portion stops. The Medicare portion keeps applying to every dollar.
| Component | Rate | 2026 limit | Applies to |
|---|---|---|---|
| Social Security (OASDI) | 12.4% | First $184,500 of net earnings | Capped; stops at the wage base |
| Medicare (HI) | 2.9% | No cap | All net earnings |
| Combined SE tax | 15.3% | SS portion capped, Medicare uncapped | Net earnings x 92.35% |
| Additional Medicare Tax | 0.9% | Above $200,000 single / $250,000 MFJ | Earnings over the threshold |
The maximum Social Security portion for 2026 is $22,878, which is 12.4% of $184,500. Any wages you also earn as a W-2 employee use up part of that base first, so only the remaining room is subject to the 12.4% SE rate.
The 92.35% factor and why it exists
Before you apply the 15.3% rate, you multiply your net business profit by 92.35% to get “net earnings from self-employment.” This step mirrors the deduction an employer takes for its share of FICA. The 92.35% figure is 100% minus 7.65%, the employer-equivalent half of the tax.
Example: $50,000 of net profit becomes $46,175 in net earnings ($50,000 x 0.9235). You then apply the 15.3% rate to $46,175, not to the full $50,000. This keeps the self-employed person from being taxed on income that an employee would never have seen because the employer paid it as payroll tax.
You must file Schedule SE and pay SE tax when your net earnings reach $400 or more. Below $400, no SE tax is due, though the income may still be reportable for income tax.
The half-of-SE-tax deduction
You can deduct one half of your self-employment tax as an above-the-line adjustment on Schedule 1 of Form 1040. This deduction lowers your adjusted gross income and therefore your income tax. It does not reduce the SE tax itself, and it does not change your net earnings for Social Security benefit purposes.
The deduction represents the employer share, which a business would normally expense. On a $46,175 base, SE tax of roughly $7,065 produces a deduction of about $3,532. That amount comes off income before income tax is calculated, so the actual dollar benefit depends on your marginal income tax bracket. Current federal income tax brackets determine how much that deduction is worth to you.
How to calculate self-employment tax: worked example
To calculate self-employment tax, take your net profit, multiply by 92.35%, apply 12.4% up to the wage base and 2.9% with no cap, then take half the result as an income tax deduction. The steps below follow Schedule SE for a sole proprietor with no W-2 wages.
- Start with net profit from Schedule C.
- Multiply by 92.35% to get net earnings from self-employment.
- Apply 12.4% Social Security tax to net earnings up to $184,500.
- Apply 2.9% Medicare tax to all net earnings.
- Add the two for total SE tax.
- Deduct half of the total on Schedule 1.
Worked example for a freelancer with $90,000 net profit in 2026:
| Line | Calculation | Amount |
|---|---|---|
| Net profit (Schedule C) | Starting figure | $90,000.00 |
| Net earnings from SE | $90,000 x 0.9235 | $83,115.00 |
| Social Security portion | $83,115 x 12.4% (under $184,500 cap) | $10,306.26 |
| Medicare portion | $83,115 x 2.9% | $2,410.34 |
| Total self-employment tax | Sum of both portions | $12,716.60 |
| Half-SE-tax deduction | $12,716.60 x 50% | $6,358.30 |
The freelancer owes $12,716.60 in SE tax and deducts $6,358.30 against income before income tax. That deduction does not lower the $12,716.60 SE bill; it lowers taxable income for the separate income tax calculation.
Schedule SE and how it fits your return
Schedule SE (Form 1040) is the form where self-employment tax is calculated and reported. Net profit flows in from Schedule C (sole proprietors) or Schedule K-1 (general partners). The total SE tax carries to Schedule 2, and half of it flows to Schedule 1 as the deduction. Both feed into your Form 1040.
Most filers use the short computation built into the current single-page Schedule SE. An optional method exists for lower-income filers who want to preserve Social Security credits despite low or negative earnings, and a separate section handles church employee income. For the broader picture of who reports this and how, see the Payroll Tax Report 2026, which covers FICA, Medicare, and federal payroll revenue.
Because no employer withholds SE tax for you, the IRS generally expects quarterly estimated tax payments covering both SE tax and income tax. Underpayment can trigger a penalty, so many self-employed people set aside 25% to 30% of profit as they earn it.
Ways the tax can vary by structure
Self-employment tax depends heavily on entity choice. A sole proprietor or partner pays SE tax on all net earnings. An S corporation owner pays FICA only on reasonable wages, which can reduce total payroll tax if the salary is set defensibly. This is a common planning point, though the IRS scrutinizes unreasonably low S corp wages.
The 20% Section 199A qualified business income deduction can reduce income tax on pass-through profit, but it does not reduce SE tax. The two operate on different lines of the return. Whether restructuring lowers your overall burden depends on profit level, state rules, and payroll costs, so the analysis often needs a tax professional.
Frequently asked questions
What is the self-employment tax rate for 2026?
The self-employment tax rate is 15.3%, made up of 12.4% for Social Security and 2.9% for Medicare. The 12.4% Social Security portion applies only to the first $184,500 of net earnings in 2026. The 2.9% Medicare portion has no cap, and a 0.9% Additional Medicare Tax may apply to higher earners.
Do I have to pay self-employment tax on all my income?
No. You pay SE tax on net earnings from self-employment, which is net profit multiplied by 92.35%. You owe the tax only if those net earnings reach $400 or more. The 12.4% Social Security portion stops once your combined wages and SE earnings hit the $184,500 wage base, while the Medicare portion continues.
Can I deduct self-employment tax?
You can deduct one half of your self-employment tax as an adjustment to income on Schedule 1 of Form 1040. This lowers your adjusted gross income and your income tax, but it does not reduce the SE tax you owe or your future Social Security benefit calculation. The deduction reflects the employer share of the tax.
What is the 0.9% Additional Medicare Tax?
The Additional Medicare Tax is an extra 0.9% on earnings above $200,000 for single filers or $250,000 for married couples filing jointly. It applies on top of the regular 2.9% Medicare portion and is calculated on Form 8959. Unlike the Social Security portion, it has no upper ceiling and is not matched by any deduction.
How does self-employment tax differ from income tax?
Self-employment tax funds Social Security and Medicare and is based on net business earnings. Income tax funds general government and is based on total taxable income after deductions and credits. You can owe SE tax in a year with little income tax, because the two are calculated separately and reported on different parts of your return.
Do S corporation owners pay self-employment tax?
S corporation shareholders do not pay SE tax on their share of company profits. They must pay themselves reasonable W-2 wages, which carry regular FICA tax split between the corporation and the employee. Profit distributed beyond that salary generally avoids payroll tax, which is why the IRS reviews S corp compensation for reasonableness.
Reviewed by The Ledgerism Editorial Team. Last reviewed: July 2026.