Self-employment tax is the equivalent of payroll taxes (Social Security and Medicare) for self-employed individuals. It's 15.3% of 92.35% of your net self-employment income.
📉 Why 92.35%?
The IRS allows you to deduct the employer portion (7.65%) before calculating SE tax. This prevents you from paying tax on tax, keeping the calculation fair compared to W-2 employees.
💰 Social Security Wage Base
For 2026, you only pay the 12.4% Social Security tax on the first $168,600 of combined wages and self-employment income. There is no limit on Medicare tax.
📝 Additional Medicare Tax
If your income exceeds $200,000 (single) or $250,000 (married), you may owe an additional 0.9% Medicare tax on earnings above those thresholds.
Frequently Asked Questions
Common questions about self-employment tax
You must pay SE tax if your net self-employment earnings are $400 or more. This applies to freelancers, independent contractors, sole proprietors, and gig workers. The tax ensures you contribute to Social Security and Medicare just like W-2 employees do through payroll withholding.
Report self-employment tax on Schedule SE (Form 1040). You'll also report your business income and expenses on Schedule C. The 50% deductible portion of SE tax goes on Schedule 1 (Form 1040), reducing your Adjusted Gross Income.
Yes! Strategies include: 1) Maximize business deductions to lower net income, 2) Form an S-Corp to split salary/distributions (consult a CPA), 3) Contribute to a Solo 401k or SEP-IRA (reduces taxable income), 4) Deduct 50% of SE tax on your income tax return.
Income tax is based on your taxable income after deductions and ranges from 10-37%. Self-employment tax is specifically for Social Security (12.4%) and Medicare (2.9%) and is calculated on 92.35% of net SE income. You pay both taxes as a self-employed person.
The Social Security wage base limit for 2026 is $168,600. You only pay the 12.4% Social Security tax on self-employment income up to this amount. There is no limit on Medicare tax (2.9%).
If your income exceeds $200,000 (single) or $250,000 (married), you may owe an additional 0.9% Medicare tax on earnings above those thresholds. This is in addition to the regular 2.9% Medicare tax.