If you work for yourself — as a freelancer, independent contractor, gig worker, or small business owner with no employees — you’ve probably run into the term «self-employment tax» and wondered what it actually means. Unlike employees, who split Social Security and Medicare taxes with their employer, self-employed workers are responsible for the full amount themselves. Understanding how this tax works — and how to calculate it — is one of the first things every freelancer needs to get right.
What Is Self-Employment Tax?
Self-employment tax is the self-employed version of the payroll taxes that fund Social Security and Medicare. When you work as a W-2 employee, your employer withholds 7.65% of your paycheck for these two programs and pays a matching 7.65% out of its own pocket, for a combined 15.3%.
When you’re self-employed, there’s no employer to split that cost with — so the IRS requires you to pay both halves yourself. That’s why self-employment tax is set at 15.3% of your net self-employment earnings, made up of two parts:
- 12.4% for Social Security
- 2.9% for Medicare
This tax is separate from — and in addition to — the federal income tax you owe on your earnings. Many new freelancers are caught off guard by this because they only budget for income tax and forget that self-employment tax exists on top of it.
Who Has to Pay Self-Employment Tax?
You generally owe self-employment tax if you had net earnings from self-employment of $400 or more during the year. This applies to:
- Freelancers and independent contractors (1099 workers)
- Gig economy workers (rideshare and delivery drivers, task-based platforms)
- Sole proprietors and single-member LLC owners
- Partners in a partnership that carries on a trade or business
- Anyone who receives 1099-NEC income for services performed
It’s worth noting that self-employment tax applies regardless of your age — even if you’re already receiving Social Security benefits, your self-employment income is still subject to this tax.
How Self-Employment Tax Is Calculated, Step by Step
Calculating self-employment tax isn’t as simple as multiplying your total income by 15.3%. The IRS uses a specific formula that reduces your taxable base slightly before applying the rate. Here’s how it works:
Step 1: Calculate Your Net Earnings from Self-Employment
Start with your total business income and subtract your ordinary and necessary business expenses (the same deductions you report on Schedule C). This gives you your net profit.
Step 2: Multiply by 92.35%
Before applying the self-employment tax rate, the IRS lets you reduce your net earnings by 7.65% — this mirrors the fact that an employer’s share of payroll tax is never counted as part of an employee’s taxable wages. So you multiply your net profit by 92.35% to get your taxable self-employment income.
Step 3: Apply the 15.3% Rate
Multiply that adjusted amount by 15.3% (12.4% Social Security + 2.9% Medicare) — but only up to the Social Security wage base limit for the year, since Social Security tax stops applying once your earnings cross that threshold. Medicare tax, on the other hand, has no cap and applies to all of your net self-employment earnings.
A Simple Example
Let’s say your net profit from freelancing this year is $80,000.
- $80,000 × 92.35% = $73,880 (this is your taxable self-employment income)
- $73,880 × 15.3% = $11,303.64
In this example, you’d owe approximately $11,304 in self-employment tax for the year, on top of your regular federal and state income tax.
The Social Security Wage Base Cap
The 12.4% Social Security portion only applies up to a yearly income ceiling set by the Social Security Administration, known as the wage base. For 2026, that limit is $184,500. Any self-employment income above that amount is no longer subject to the 12.4% Social Security tax, though it remains subject to the 2.9% Medicare tax, which has no upper limit.
If your net self-employment earnings for 2026 reach the full $184,500 wage base, the maximum Social Security portion of your self-employment tax would be $22,878 (12.4% of $184,500), plus 2.9% Medicare tax on your full net earnings.
The Additional 0.9% Medicare Tax for Higher Earners
If your self-employment income (combined with any wages, if you also work a W-2 job) exceeds certain thresholds, an Additional Medicare Tax of 0.9% kicks in on the amount above the threshold:
- $200,000 for single filers
- $250,000 for married filing jointly
- $125,000 for married filing separately
This brings the effective Medicare portion to 3.8% on income above these limits, on top of the standard 2.9%.
The Good News: You Can Deduct Half of What You Pay
Here’s a detail that trips up a lot of new freelancers in a good way: you get to deduct half of your self-employment tax as an above-the-line adjustment to income when you file your federal tax return. This doesn’t reduce your self-employment tax bill itself, but it does lower your adjusted gross income (AGI), which in turn can reduce your overall income tax liability.
In the example above, you’d be able to deduct roughly $5,652 (half of $11,304) from your taxable income when calculating your federal income tax — even if you don’t itemize deductions.
Self-Employment Tax vs. Income Tax: Don’t Confuse the Two
One of the most common mistakes new freelancers make is assuming that once they’ve paid income tax, they’re done. In reality, self-employment tax and income tax are calculated separately and both are due:
- Self-employment tax funds Social Security and Medicare and is calculated on Schedule SE.
- Income tax is calculated on your total taxable income, including your net self-employment profit, using the regular tax brackets.
Both amounts typically need to be paid throughout the year via quarterly estimated tax payments, rather than in one lump sum the following April, to avoid IRS underpayment penalties.
How to Report Self-Employment Tax
Self-employment tax is calculated on Schedule SE, which is filed along with your Form 1040. The net profit figure used to calculate it comes from Schedule C, where you report your business income and expenses. Once Schedule SE is complete, the total self-employment tax owed flows into your overall tax return, and the deductible half is applied as an adjustment to income.
Quick Recap
- Self-employment tax is 15.3% of your net self-employment earnings, covering Social Security (12.4%) and Medicare (2.9%).
- You calculate it on 92.35% of your net profit, not the full amount.
- The 12.4% Social Security portion caps out once your income hits the annual wage base ($184,500 for 2026); the 2.9% Medicare portion never caps out.
- Higher earners may owe an additional 0.9% Medicare tax above certain income thresholds.
- You can deduct half of your self-employment tax from your taxable income, which softens the overall hit.
- It’s calculated on Schedule SE and is separate from your regular federal income tax.
Frequently Asked Questions
Do I still owe self-employment tax if I had a loss this year? No. Self-employment tax is only owed on net profit. If your business had a net loss, you generally don’t owe self-employment tax for that year.
Does self-employment tax replace income tax? No. Self-employment tax is in addition to federal (and often state) income tax. You calculate and pay both.
Can I avoid self-employment tax by forming an LLC? A single-member LLC taxed as a disregarded entity is still subject to self-employment tax in the same way as a sole proprietorship. Some freelancers reduce their self-employment tax exposure by electing S-Corp taxation once their income reaches a certain level, since only the «salary» portion is subject to payroll tax — but this comes with added complexity and costs that should be discussed with a tax professional before making the switch.
Is self-employment tax the same in every state? Self-employment tax itself is a federal tax and is the same nationwide. However, you may owe separate state income tax on your self-employment earnings depending on where you live.
This article is for general informational purposes and reflects federal tax rules for the 2026 tax year. Tax laws and thresholds change annually — always confirm current figures with the IRS or a qualified tax professional (CPA or Enrolled Agent) before filing.