Self-Employment Tax Explained: The 15.3% Tax Every Freelancer and Business Owner Pays

Last updated: 2026-03-27

Summary:Self-employment (SE) tax is how freelancers, sole proprietors, and other self-employed individuals pay into Social Security and Medicare. The rate is 15.3% — 12.4% for Social Security (capped at $184,500 in 2026) and 2.9% for Medicare (no cap). Unlike employees who split these taxes 50/50 with their employer, self-employed people pay both halves. You can deduct the employer-equivalent half from your adjusted gross income. The biggest strategies to reduce SE tax are electing S-Corp status (saving 15.3% on distributions), maximizing retirement contributions (SEP IRA or Solo 401k), and taking the self-employed health insurance deduction.

Free Calculator: Use our Self-Employment Tax Calculator to instantly calculate your SE tax, income tax, QBI deduction, and quarterly payments for 2026.

What is self-employment tax?

Self-employment tax is a federal tax that funds Social Security and Medicare. When you work as an employee, your employer withholds 7.65% of your wages for FICA taxes (6.2% Social Security + 1.45% Medicare) and pays a matching 7.65% on top of that. The total is 15.3%.

When you are self-employed, there is no employer to pay the other half. You are both the employer and the employee, so you pay the entire 15.3%. This is reported on Schedule SE (Form 1040) and paid alongside your income tax through quarterly estimated payments.

Self-employment tax is in addition to federal income tax. Many new business owners are shocked by this because they are used to seeing FICA taxes quietly withheld from a paycheck. When you are self-employed, you see the full amount and must budget for it yourself.

How is the 15.3% self-employment tax rate broken down?

Component	Employee Share	Employer Share	SE Total	Cap
Social Security	6.2%	6.2%	12.4%	$184,500 (2026)
Medicare	1.45%	1.45%	2.9%	No cap
Additional Medicare	0.9%	0%	0.9%	Over $200K (single) / $250K (MFJ)
Total	7.65%	7.65%	15.3%	—

Social Security cap:In 2026, you only pay the 12.4% Social Security portion on the first $184,500 of combined wages and self-employment income. If you also have W-2 wages, your wages count first. For example, if you earn $120,000 in W-2 wages and $80,000 in self-employment income, only $48,600 of your SE income is subject to the Social Security portion ($184,500 − $120,000).

Medicare has no cap: The 2.9% Medicare tax applies to all net self-employment earnings regardless of amount.

Additional Medicare Tax:Starting in 2013 (as part of the Affordable Care Act), an extra 0.9% Medicare surtax applies to self-employment earnings above $200,000 for single filers or $250,000 for married filing jointly. Only the employee portion applies — there is no employer match for this additional tax.

Who pays self-employment tax?

You owe self-employment tax if you have net self-employment earnings of $400 or more per year. This includes:

•Sole proprietors— all Schedule C net profit is subject to SE tax
•Freelancers and independent contractors— whether you receive 1099-NECs or not, all self-employment income counts
•Single-member LLC owners— by default, taxed as sole proprietorship; all net profit is subject to SE tax
•Partners in partnerships— each partner's distributive share of partnership income is subject to SE tax (reported on Schedule K-1)
•Multi-member LLC members— by default, taxed as a partnership; each member pays SE tax on their share
•Gig workers— Uber, DoorDash, Instacart, Fiverr, and Upwork income is self-employment income

Who does NOT pay SE tax:

•W-2 employees— they pay FICA (which covers the same taxes) through payroll withholding
•S-Corp shareholders— they pay payroll tax on their salary but not SE tax on distributions
•C-Corp shareholders— the corporation pays employer FICA on salaries; dividends are not subject to SE tax
•Limited partners— generally exempt from SE tax on their distributive share (only guaranteed payments may be subject)

How do you calculate self-employment tax step by step?

The calculation is straightforward but has a few nuances. Here is a step-by-step process with a worked example for a freelancer earning $100,000 in net profit:

Start with your net self-employment income. This is your gross business revenue minus all deductible business expenses. On Schedule C, this is line 31 (net profit). In our example: $100,000.

Multiply by 92.35% (0.9235).The IRS gives you a 7.65% reduction to approximate the employer-equivalent portion of FICA that W-2 employers do not pay tax on. This is the "92.35% adjustment." $100,000 × 0.9235 = $92,350. This is your "taxable self-employment earnings."

Calculate Social Security tax (12.4%). $92,350 × 0.124 = $11,451.40. Since $92,350 is below the 2026 cap of $184,500, the full amount is taxed. If your earnings exceeded the cap, you would only pay 12.4% up to $184,500.

Calculate Medicare tax (2.9%).$92,350 × 0.029 = $2,678.15. There is no cap on Medicare tax.

Add them together for total SE tax. $11,451.40 + $2,678.15 = $14,129.55. This is approximately 14.13% of your original $100,000 net profit (not the full 15.3%, thanks to the 92.35% adjustment).

Deduct half of SE tax from adjusted gross income. $14,129.55 ÷ 2 = $7,064.78. This is an "above-the-line" deduction on Form 1040 (line 15). It reduces your income tax but does not reduce your SE tax. Your adjusted gross income becomes $100,000 − $7,064.78 = $92,935.22.

Worked Example Summary: $100,000 Net Profit

Net self-employment income	$100,000.00
× 92.35% adjustment	$92,350.00
Social Security tax (12.4%)	$11,451.40
Medicare tax (2.9%)	$2,678.15
Total SE tax	$14,129.55
Deductible half (income tax adjustment)	$7,064.78

SE Tax at Different Income Levels (2026)

Because the Social Security portion caps at $184,500 in 2026, the effective SE tax rate decreases as income rises above the cap. Here are worked examples at four income levels:

Net Profit	Taxable SE Earnings (x 92.35%)	SS Tax (12.4%)	Medicare (2.9%)	Add'l Medicare (0.9%)	Total SE Tax	Effective Rate
$50,000	$46,175	$5,725.70	$1,339.08	$0	$7,064.78	14.13%
$100,000	$92,350	$11,451.40	$2,678.15	$0	$14,129.55	14.13%
$200,000	$184,700	$22,878.00	$5,356.30	$0	$28,234.30	14.12%
$300,000	$277,050	$22,878.00	$8,034.45	$693.45	$31,605.90	10.54%

Key insight:At $300,000, the Social Security tax is the same as at $200,000 because the taxable SE earnings ($277,050) exceed the 2026 cap of $184,500. Only the Medicare portion (2.9%) continues to apply above the cap, plus the Additional Medicare Tax (0.9%) kicks in above $200,000 for single filers. This is why the effective SE tax rate drops from 14.13% to 10.54% as income rises. The Additional Medicare Tax for the $300,000 earner applies to $277,050 − $200,000 = $77,050 × 0.9% = $693.45.

Why is there a 92.35% adjustment?

The 92.35% factor (or equivalently, the 7.65% reduction) exists to put self-employed people on equal footing with employees when it comes to FICA taxation.

When you are a W-2 employee, your employer pays 7.65% of your wages in FICA taxes on your behalf. This employer-paid portion is not considered part of your taxable wages — you never pay income tax or FICA on it.

Since self-employed individuals pay both the employee and employer portions, the IRS reduces the taxable base by 7.65% to simulate the fact that the "employer half" would not be taxable income if you were an employee. In effect, the 92.35% adjustment ensures you are not paying SE tax on the portion of your income that represents the employer's contribution.

This is the same reason you can deduct half of your SE tax from your adjusted gross income — both provisions approximate the tax treatment that W-2 employees receive automatically.

How does self-employment tax compare to regular employment tax?

Factor	W-2 Employee	Self-Employed
Total rate	15.3% (split 50/50 with employer)	15.3% (you pay both halves)
What you see on your pay	7.65% withheld from paycheck	Full 15.3% (on 92.35% of net earnings)
Employer portion	Employer pays 7.65% (invisible to you)	You pay it, then deduct half from AGI
Tax base adjustment	Not applicable (employer portion excluded)	92.35% adjustment before calculating
Withholding	Automatic payroll withholding	Quarterly estimated payments (your responsibility)
Filed on	W-2 and employer's Form 941	Schedule SE (Form 1040)

The effective tax burden is very similar between employees and self-employed individuals. The key differences are visibility (employees never see the employer half) and responsibility (self-employed must manage their own payments and deductions).

How can you reduce your self-employment tax?

Elect S-Corp taxation.This is the most powerful SE tax reduction strategy for profitable businesses. As an S-Corp, you pay yourself a "reasonable salary" (subject to payroll taxes) and take remaining profits as distributions (not subject to SE tax). If your business earns $150,000 and you set a reasonable salary of $80,000, you save 15.3% on the $70,000 in distributions — roughly $10,710 per year. The S-Corp election generally makes sense when net profit exceeds $40,000-$60,000 after accounting for additional payroll and accounting costs.

Maximize retirement contributions. Contributions to a SEP IRA (up to 25% of net SE earnings, max $72,000 in 2026) or Solo 401(k) (up to $24,500 employee + 25% employer, max $72,000 total in 2026) reduce your taxable income. While these contributions do not directly reduce SE tax (they reduce income tax), they are the smartest way to shelter self-employment income and build retirement savings simultaneously.

Deduct all legitimate business expenses. Every deductible business expense directly reduces your net self-employment income, which in turn reduces both your income tax and SE tax. Common deductions include home office, vehicle expenses, equipment, supplies, software, advertising, professional services, insurance premiums, and education related to your trade.

Take the self-employed health insurance deduction. You can deduct 100% of health insurance premiums for yourself, your spouse, and dependents. This is an above-the-line deduction that reduces your income tax (though not SE tax directly). Premiums for medical, dental, vision, and qualifying long-term care insurance all qualify.

Hire your children. If you have children under 18, you can hire them for legitimate work in your sole proprietorship or single-member LLC. Their wages are exempt from Social Security, Medicare, and FUTA taxes. You deduct their wages as a business expense (reducing your SE tax), and they may owe little or no income tax on their earnings thanks to the standard deduction.

Consider an HSA if eligible. If you have a high-deductible health plan (HDHP), contributing to a Health Savings Account (HSA) gives you an above-the-line deduction. 2026 limits are $4,400 (individual) and $8,750 (family), plus a $1,000 catch-up contribution if you are 55 or older. HSA contributions reduce income tax but not SE tax directly.

What is the Additional Medicare Tax (0.9%)?

The Additional Medicare Tax is a 0.9% surtax that applies to self-employment earnings above certain thresholds, enacted as part of the Affordable Care Act (ACA) starting in 2013.

Filing Status	Threshold	Rate on Excess
Single / Head of Household	$200,000	0.9%
Married Filing Jointly	$250,000	0.9%
Married Filing Separately	$125,000	0.9%

These thresholds are based on combined wages and self-employment income. If you earn $150,000 in W-2 wages and $100,000 in self-employment income, your total is $250,000 and you owe the additional 0.9% on $50,000 (the amount exceeding $200,000 for single filers). Unlike the standard 2.9% Medicare tax, the Additional Medicare Tax has no employer match — the employee (or self-employed individual) pays the full 0.9%.

The Additional Medicare Tax is reported on Form 8959. It is not deductible.

Official Resources

Frequently Asked Questions

What is the self-employment tax rate for 2026?

The self-employment tax rate is 15.3% of net self-employment income. This consists of 12.4% for Social Security (on the first $184,500 of combined wages and self-employment income in 2026) and 2.9% for Medicare (on all net earnings with no cap). If your net self-employment income exceeds $200,000 (single) or $250,000 (married filing jointly), an additional 0.9% Medicare surtax applies to earnings above those thresholds.

Do I pay self-employment tax on top of income tax?

Yes. Self-employment tax and income tax are separate obligations. If you earn $100,000 in net self-employment income, you owe self-employment tax (approximately $14,130) AND federal income tax on that income. However, you can deduct the employer-equivalent half of your SE tax (about $7,065) from your adjusted gross income, which reduces your income tax. You may also owe state income tax depending on where you live. Additionally, eligible pass-through business owners can claim the Qualified Business Income (QBI) deduction under Section 199A, which allows a deduction of up to 20% of qualified business income, further reducing income tax.

Do S-Corp owners pay self-employment tax?

S-Corp shareholders who work in the business pay themselves a 'reasonable salary,' on which they pay the equivalent of SE tax through payroll taxes (FICA). However, any remaining profits distributed as shareholder distributions are NOT subject to self-employment tax or FICA. This is the primary tax advantage of the S-Corp election — you can save 15.3% on the distribution portion. The IRS requires the salary to be 'reasonable,' meaning you cannot set it artificially low to avoid payroll taxes.

Is there a minimum income for self-employment tax?

Yes. You must pay self-employment tax if your net self-employment earnings are $400 or more per year. Below that threshold, you do not owe SE tax and do not need to file Schedule SE. Note that this $400 threshold applies to net earnings (revenue minus deductible business expenses), not gross revenue.

Do I pay self-employment tax on rental income?

Generally, no. Rental income is typically classified as passive income and is not subject to self-employment tax. However, if you are a real estate professional who materially participates in rental activities, or if you provide significant services to tenants (like a hotel or bed-and-breakfast), your rental income may be subject to SE tax. Also, if you are a real estate dealer (buying and selling properties as a trade or business), your gains may be subject to SE tax.

How do I pay self-employment tax — is there a separate form?

Self-employment tax is calculated on Schedule SE (Form 1040) and reported on your personal income tax return. You pay it as part of your quarterly estimated tax payments (Form 1040-ES). There is no separate payment mechanism — your estimated tax payments cover both income tax and self-employment tax. If you do not make quarterly payments and owe more than $1,000 at tax time, you will face an underpayment penalty.

Can I deduct my health insurance premiums if I am self-employed?

Yes. Self-employed individuals can deduct 100% of their health insurance premiums (medical, dental, and qualified long-term care) for themselves, their spouse, and their dependents as an 'above-the-line' deduction on Form 1040. This reduces your income tax but does NOT reduce your self-employment tax. The deduction is limited to your net self-employment income and is not available for months when you were eligible for an employer-sponsored plan (such as a spouse's employer plan).

What is the difference between self-employment tax and payroll tax?

They cover the same programs (Social Security and Medicare) but are split differently. Employees pay 7.65% through payroll withholding, and their employer pays the other 7.65% — totaling 15.3%. Self-employed individuals pay the full 15.3% because they are both employer and employee. The IRS allows self-employed people to deduct the employer-equivalent half (7.65%) as an adjustment to income, partially offsetting the double payment.

Do LLC members pay self-employment tax?

It depends on how the LLC is taxed. Single-member LLCs (taxed as sole proprietorships) and multi-member LLCs (taxed as partnerships) pay self-employment tax on their share of business profits. However, if the LLC elects to be taxed as an S-Corp, members who work in the business pay themselves a salary (subject to payroll tax) and can take remaining profits as distributions not subject to SE tax. LLCs taxed as C-Corps do not pass through SE tax to members; instead, owner-employees pay FICA through the corporate payroll.

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This is general information, not tax or legal advice. Tax rates, thresholds, and rules change annually. Always consult a qualified tax professional (CPA or Enrolled Agent) for advice specific to your situation. Sources: IRS.gov, Social Security Administration, SBA.gov.