Self-employment tax explained

What is self-employment tax?

Self-employment tax funds Social Security and Medicare for people who work for themselves. It is the self-employed version of the FICA tax on wages. An employee pays 7.65% of wages and the employer pays another 7.65%. A self-employed person pays both shares, 15.3% in total, on their own business profit. See 1099 vs W-2 for a side-by-side comparison.

It is separate from income tax. You can owe self-employment tax even in a year when you owe no income tax, because deductions and credits that reduce income tax do not reduce it.

Who has to pay it?

You owe self-employment tax if your net earnings from self-employment are $400 or more in the year. That includes:

• sole proprietors and freelancers reporting on Schedule C,
• owners of single-member LLCs taxed under the default rules,
• members of LLCs taxed as partnerships who are active in the business, on their share of profit and on guaranteed payments for services.

Two groups generally do not pay it on their business profit. S corporation owners pay payroll tax on their salary instead, and nonresident aliens are generally not subject to self-employment tax. See when an S corp election saves tax.

How is self-employment tax calculated?

1. Start with net profit

   Your business income minus your business expenses, from Schedule C or your partnership K-1.

2. Multiply by 92.35%

   This reduction mirrors the fact that employees do not pay FICA on their employer's share. The result is your net earnings from self-employment.

3. Apply 12.4% for Social Security

   Only on net earnings up to the Social Security wage base, $184,500 for 2026. Wages you earned as an employee in the same year count towards that cap first.

4. Apply 2.9% for Medicare

   On all net earnings, with no cap.

The calculation is done on Schedule SE and the total carries to Form 1040.

The form line by line is covered in Schedule SE.

Worked examples for 2026

The second example also owes the 0.9% Additional Medicare Tax on earnings above $200,000 for a single filer, about $278 here, worked out separately on Form 8959. These figures assume no wages from a job in the same year.

What is the deduction for half of it?

You deduct half of your self-employment tax when working out your adjusted gross income. It reduces income tax, not the self-employment tax itself. In the $60,000 example, about $4,239 comes off income subject to income tax. The deduction exists to match the treatment of employers, who deduct their share of payroll tax as a business expense.

Health insurance premiums are deducted separately. See the self-employed health insurance deduction.

What is the Additional Medicare Tax?

An extra 0.9% Medicare tax applies to earnings above $200,000 for single filers, $250,000 for married couples filing jointly and $125,000 for married people filing separately. Wages and self-employment earnings are counted together. These thresholds are fixed in the law and not adjusted for inflation.

How and when is it paid?

Nothing is withheld from self-employment income, so self-employment tax is paid with income tax through quarterly estimated payments, then settled on your return. See how much to set aside for taxes. See estimated quarterly taxes for the 2026 due dates and safe harbors.

Can you reduce self-employment tax?

• Claim every legitimate business expense. The tax is on net profit, so each deductible expense reduces it. See deductible business expenses.
• Consider S corporation status once profit is high enough. Payroll tax then applies to a reasonable salary rather than all profit, but the election has costs of its own.
• Know what does not help. Retirement contributions and the health insurance deduction reduce income tax but not self-employment tax.

This guide is general information. It is not tax or legal advice for your situation.