How self-employment tax works
An employee splits FICA tax with an employer. When you work for yourself there is no employer, so the Self-Employment Contributions Act makes you pay both shares: 12.4% for Social Security and 2.9% for Medicare, 15.3% in all. You figure it on Schedule SE and pay it with your Form 1040, alongside income tax. Nobody withholds it, so most self-employed people send quarterly estimated payments on April 15, June 15, September 15 and January 15.
It applies to net profit, not revenue. Sole proprietors, freelancers, independent contractors and gig workers pay it on Schedule C profit after business expenses. The owner of a one-member LLC pays it the same way a sole proprietor does, unless the LLC elects to be taxed as a corporation. General partners pay it on their share of partnership earnings, while a limited partner’s share is excluded except for guaranteed payments for services. If you run two businesses, a loss in one reduces the profit of the other.
Some income is outside it even when you earn it on your own. Rent from real estate is generally excluded unless you are a real estate dealer. Profit distributions from an S corporation aren’t subject to it, although an owner who works in the business must be paid reasonable wages that carry FICA. The tax starts once net earnings reach $400, or $108.28 of church employee income, and each spouse with self-employment income files a separate Schedule SE.
How to calculate self-employment tax
The calculation runs in four steps. The odd-looking 92.35% is the tax code’s way of treating you like an employee. An employer’s own share of FICA is never part of an employee’s wages, so section 1402 first takes 7.65%, half the 15.3% rate, off your net earnings, and the tax applies to what is left.
That step and the later deduction for half the tax are easy to confuse, but they do different jobs. The 92.35% step shrinks the base the tax is charged on. The half deduction is a separate adjustment on your income tax return. Below the wage base the combined rate works out to about 14.13% of profit (15.3% × 92.35%).
- Start with net profit from Schedule C, or your partnership share, and multiply by 92.35%. The result is your net earnings from self-employment.
- Apply 12.4% Social Security tax to those earnings, up to $184,500 in 2026 less any W-2 wages you had.
- Apply 2.9% Medicare tax to all of them, with no cap. Above $200,000 ($250,000 joint), the 0.9% Additional Medicare Tax is added on Form 8959.
- Deduct half of the 15.3% tax, the employer-equivalent portion, when figuring adjusted gross income. The deduction lowers income tax only; it doesn’t reduce the self-employment tax itself.
Self-employment tax with a W-2 job too
The Social Security wage base is shared between wages and self-employment earnings, and wages come first. If your paycheck already pays Social Security tax on part of the $184,500, only the remaining room is left for the 12.4% on your business. Medicare has no such limit, so the 2.9% applies to every dollar of your net earnings.
Take a single filer with $150,000 of wages and $60,000 of profit from a side business in 2026. Net earnings are $55,410 (92.35% of $60,000). The wage base leaves $34,500 of room, so the Social Security part is $4,278. The Medicare part is 2.9% of $55,410, or $1,606.89. For the 0.9% surtax, the $200,000 threshold is first reduced by the $150,000 of wages, leaving $50,000, so $5,410 of the earnings owes another $48.69. Total: about $5,934.
The benefit side follows the same cap. Earnings above the wage base, from any mix of jobs and businesses, add nothing to your future Social Security benefit. A self-employment loss can’t reduce the FICA taken from your paycheck either.
Self-employment tax vs. FICA on wages
The two systems are built to collect about the same amount. An employee sees 7.65% withheld and never sees the employer’s matching 7.65%, which is part of the cost of employing them. A self-employed person pays 15.3% but on only 92.35% of profit, and deducts half the tax from income, mirroring the way an employer’s share never shows up as the employee’s income.
The practical differences are cash flow and paperwork. Employees are taxed out of each paycheck, while the self-employed must set money aside and pay quarterly, with an underpayment penalty if payments fall short of the safe harbors. The table sets the two side by side.
What lowers self-employment tax, and what doesn’t
Because the tax is figured on business profit, only things that reduce that profit reduce it. Several popular moves lower income tax and leave self-employment tax untouched, and every legitimate cut also means fewer Social Security earnings on your record, which lowers the benefit you build. An S corporation also brings payroll filings and a reasonable-salary test, so weigh any of these moves against both the tax saved and the benefit given up.
- Lowers it: ordinary and necessary business expenses on Schedule C, including wages paid to employees.
- Lowers it: paying your own child under 18 for real work in your sole proprietorship. The child’s wages are exempt from FICA and deductible to the business.
- Can lower it: electing S corporation status and paying yourself a reasonable salary. The IRS can recast distributions as wages if the salary is too low.
- Doesn’t lower it: your own contributions to a SEP IRA or solo 401(k), or the self-employed health insurance deduction. Both are taken on Schedule 1 of Form 1040 after the profit is figured.
- Doesn’t lower it: the deduction for half of self-employment tax, which reduces income tax only.
Illustrative numbers
Self-employment tax on $80,000 of freelance profit, no other wages, 2026
- P
- net profit from self-employment (Schedule C profit or partnership earnings)
- W
- W-2 wages already subject to Social Security tax this year (use zero if none)
- $184,500
- the 2026 Social Security wage base
Any 0.9% Additional Medicare Tax is figured separately on Form 8959 and is not part of the deductible half.
Net profit from Schedule C$80,000
Net earnings from self-employment (× 92.35%)$73,880
Social Security part (12.4%)$9,161.12
Medicare part (2.9%)$2,142.52
Self-employment tax$11,303.64
Deduction for half, lowering adjusted gross income$5,651.82
The freelancer owes $11,303.64, about 14.1% of profit, before any income tax. The $5,651.82 deduction trims taxable income, worth $1,243 at a 22% bracket. The profit also earns four Social Security credits for 2026, the most anyone can earn in a year.
At a glance
FICA on wages vs. self-employment tax, 2026
| Feature | Employee (FICA) | Self-employed (SE tax) |
|---|---|---|
| Social Security rate | 6.2% employee + 6.2% employer | 12.4% |
| Medicare rate | 1.45% employee + 1.45% employer | 2.9% |
| Taxed amount | Gross wages, including 401(k) deferrals | 92.35% of net profit |
| Social Security cap | $184,500 of wages | $184,500, less wages already taxed |
| Additional Medicare Tax | 0.9% over the threshold, withheld above $200,000 | 0.9% over the threshold, reduced by wages |
| How it is paid | Withheld from each paycheck | Estimated payments and Schedule SE |
| Income tax deduction | None for the employee’s share | Half of the 15.3% tax |
Put it in your plan
SE tax in MoneyWhatIf
MoneyWhatIf taxes self-employment profit the way Schedule SE does in outline: it applies both the Social Security and Medicare shares to 92.35% of the profit and deducts half of the core tax in the income-tax worksheet. With planned earnings switched on, those earnings, counted at the same 92.35% share, also feed the Social Security benefit estimate. When a couple files separately, each spouse’s self-employment income and the deduction for half its tax land on that spouse’s own return. The projection doesn’t prepare tax forms or model every business deduction.
Common questions
SE tax FAQs
Do I have to pay self-employment tax if I made less than $400?
No. Self-employment tax applies only when net earnings from self-employment reach $400 for the year, or when church employee income reaches $108.28. Below that you owe no self-employment tax, although you may still owe income tax on the profit and may still need to file a return.
Is self-employment tax deductible?
Half of it is. The employer-equivalent portion, half of the 15.3% tax, is an adjustment to income on Schedule 1, so it lowers adjusted gross income whether or not you itemize. It doesn’t lower the self-employment tax itself, and the 0.9% Additional Medicare Tax is left out of it entirely.
Do self-employed people pay both income tax and self-employment tax?
Yes, on the same profit. Self-employment profit is earned income, so it owes both. Income tax applies to it along with your other income, after deductions such as half of the self-employment tax, at your bracket rates. Self-employment tax is a separate 15.3% on 92.35% of the profit, figured on Schedule SE and added to your total tax on Form 1040. It has no brackets or standard deduction, so it can be due even when you owe no income tax.
Do I pay self-employment tax on rental income?
Usually not. Rent from real estate, and from personal property leased with it, is excluded from net earnings from self-employment unless you receive it in the business of being a real estate dealer. Rental profit is still subject to income tax, and a high-income landlord may owe the 3.8% net investment income tax on it.
Does self-employment tax count toward Social Security?
Yes. Self-employment earnings that pay the tax go on your Social Security record just as wages do, earning credits (one per $1,890 in 2026, up to four) and counting toward the 35-year average behind your benefit. Optional methods on Schedule SE can let people with a small profit or a loss still earn coverage.
What is the maximum self-employment tax for 2026?
The Social Security part tops out at $22,878, which is 12.4% of the $184,500 wage base, reached with about $199,783 of net profit and no W-2 wages. The Medicare part has no maximum: 2.9% keeps applying to every dollar of net earnings, plus 0.9% above the Additional Medicare threshold.