Self-Employment Tax: How It Works and How to Calculate It
If you are self-employed - whether as a freelancer, independent contractor, or sole proprietor - you owe self-employment (SE) tax on your net earnings. This tax covers your Social Security and Medicare contributions, which W-2 employees split with their employer.
In 2026, the combined SE tax rate is 15.3% on the first $184,500 of net earnings, plus 2.9% Medicare on everything above that. We break it down below.
What Is Self-Employment Tax?
Self-employment tax is the self-employed person's version of FICA (Federal Insurance Contributions Act). W-2 employees pay 7.65% of their wages, and their employer pays the other 7.65%. When you are self-employed, you pay both halves - the full 15.3%.
SE tax is separate from income tax. You owe it in addition to your federal and state income tax. However, you can deduct 50% of your SE tax from your adjusted gross income, which reduces your income tax.
Current Rates - Tax Year 2026
| Component | Rate | Applies To |
|---|---|---|
| Social Security | 12.4% | First $184,500 of net SE earnings |
| Medicare | 2.9% | All net SE earnings (no cap) |
| Additional Medicare | 0.9% | Combined earned income above $200,000 (single) |
| Total SE Tax | 15.3% | Up to wage base; 2.9%+ above |
How to Calculate Self-Employment Tax - Step by Step
The IRS does not apply the 15.3% rate directly to your net income. There is an adjustment factor first:
The 92.35% factor exists because the IRS treats half of your SE tax as a business expense - it is the self-employed equivalent of the employer's share.
Example: $80,000 SE Income
Step 1: $80,000 × 92.35% = $73,880 (taxable SE income)
Step 2: $73,880 × 12.4% = $9,161 (Social Security)
Step 3: $73,880 × 2.9% = $2,143 (Medicare)
Step 4: $80,000 < $200,000 → $0 Additional Medicare
Step 5: $9,161 + $2,143 = $11,304 total SE tax
Step 6: $11,304 × 50% = $5,652 deduction from AGI
How W-2 Wages Affect Your SE Tax
If you also have a W-2 job, your employer already pays Social Security tax on those wages. The $184,500 wage base is shared between your W-2 wages and SE income. So if you earn $150,000 in W-2 wages, only the first $34,500 of your SE income is subject to the 12.4% Social Security rate. Medicare has no cap and applies to all earnings regardless.
The 50% SE Tax Deduction
You can deduct half of your SE tax when calculating your adjusted gross income (AGI). This is an "above-the-line" deduction - you get it even if you take the standard deduction. It does not reduce your SE tax itself, but it reduces your income tax.
When to Pay
If you expect to owe $1,000 or more in tax (including SE tax), you must make quarterly estimated tax payments. The due dates are April 15, June 15, September 15, and January 15 of the following year. Use our Quarterly Estimated Tax Calculator to determine your payment amount.
Mistakes That Cost You Money
- Forgetting the 92.35% factor. Your SE tax base is not your full net income - it is 92.35% of it.
- Not accounting for W-2 wages. If you have both W-2 and SE income, the wage base is shared.
- Ignoring Additional Medicare Tax. If your combined earned income exceeds $200,000 (single) or $250,000 (married), you owe an extra 0.9%.
- Missing the deduction. The 50% SE tax deduction reduces your AGI and therefore your income tax.
Who Counts as Self-Employed
The IRS definition is broader than most people expect. For SE tax purposes, you are self-employed if you earn money in any of these ways:
- Sole proprietor. You run a business under your own name or a DBA, with no formal entity.
- Single-member LLC. The IRS treats it as a disregarded entity by default, so the tax math is identical to a sole proprietorship.
- 1099 contractor. A client pays you for services and sends a 1099-NEC instead of a W-2.
- Gig worker. Rideshare driving, food delivery, freelance marketplaces, online selling - platform income counts the same as any other business income.
If your net earnings from these activities reach $400 for the year, you file Schedule SE and pay the tax. And a W-2 job on the side does not exempt you. If you earn $70,000 in wages and $12,000 from freelance work, that $12,000 is still subject to SE tax. Your employer's withholding covers your wages only - the side income is on you.
Schedule SE in Practice
Here is how the numbers move through your actual return. Your business income and expenses go on Schedule C, which produces a net profit figure. That profit carries to Schedule SE, where you multiply it by 92.35% to get your taxable base. Schedule SE then splits the tax into two lines: 12.4% for Social Security on the base (up to the $184,500 wage cap) and 2.9% for Medicare with no cap. The total flows to your Form 1040 as part of your tax bill, and half of it comes back as an above-the-line deduction - our SE tax deduction guide covers how to claim it.
Taxable base: $60,000 x 92.35% = $55,410
Social Security line: $55,410 x 12.4% = $6,871
Medicare line: $55,410 x 2.9% = $1,607
Total SE tax: $6,871 + $1,607 = $8,478
Deduction: $8,478 x 50% = $4,239 off your AGI
You do not have to work through the form by hand to plan ahead. Our Self-Employment Tax Calculator runs the same math with 2026 rates and shows the Social Security and Medicare pieces separately, so you can see where each dollar goes before filing season.
How an S-Corp Changes the Picture
Once profit grows, some self-employed people elect S-corporation status. The appeal: an S-corp owner pays themselves a salary, which is subject to Social Security and Medicare taxes through payroll, but profit taken as distributions above that salary is not. If the business earns $120,000 and a reasonable salary for the work is $70,000, the remaining $50,000 in distributions skips the 15.3%. The catch is that the IRS requires the salary to be reasonable for the work performed, and the structure adds real costs: payroll processing, a separate business tax return, and possibly state fees. The election only makes sense when the SE tax savings clearly outrun that overhead, which usually means consistent profit well above a reasonable salary for your role. This is a decision to run past a CPA with your actual numbers, not one to make from a blog post.