Self-employment tax
Self-employment tax is the 15.3% Social Security and Medicare tax that self-employed people pay on their net business profit, in place of the split an employer and employee would normally share. It breaks down into 12.4% for Social Security and 2.9% for Medicare. You figure it on Schedule SE, you only pay it on 92.35% of your net earnings, and you can deduct half of what you owe as an adjustment to income.
What is self-employment tax?
When you work a regular job, your employer withholds Social Security and Medicare taxes from your paycheck and quietly pays a matching amount on top. Together those two halves fund your future Social Security and Medicare benefits.
When you work for yourself, there is no employer to pay the other half. So the IRS collects both halves from you directly, and that combined payment is called self-employment (SE) tax. It is separate from the income tax you also owe. Paying it is what earns you Social Security credits and Medicare coverage for your self-employed years.
How much is self-employment tax?
The self-employment tax rate is 15.3%, made up of two parts:
- 12.4% for Social Security. This part applies only up to an annual earnings cap called the Social Security wage base. The cap changes every year to keep pace with average wages. For the 2025 tax year it is $176,100, and the Social Security Administration has set it at $184,500 for 2026. Earnings above the cap are not charged the Social Security portion.
- 2.9% for Medicare. This part has no cap. Every dollar of net self-employment earnings is subject to it.
High earners owe an extra 0.9% Additional Medicare Tax on wages and self-employment income above a threshold set by filing status ($200,000 for single filers, $250,000 for married filing jointly, $125,000 for married filing separately). This is on top of the regular 2.9% Medicare portion.
How is self-employment tax calculated?
You do not pay the 15.3% on your full profit. The calculation runs in three steps on Schedule SE:
- Start with your net profit from your business (your income minus your business expenses).
- Multiply by 92.35% (0.9235). This smaller number is the amount actually subject to SE tax. The 7.65% that gets removed mirrors the employer-side payroll tax that a company would have deducted before taxing you, so the self-employed are not taxed on a slice a regular employee never sees.
- Apply the 15.3% rate to that adjusted figure to get your self-employment tax.
Worked example
Say your business had a net profit of $60,000 for the year.
| Step | Calculation | Amount |
|---|---|---|
| Net profit | Starting point | $60,000.00 |
| Earnings subject to SE tax | $60,000 × 92.35% | $55,410.00 |
| Social Security portion | $55,410 × 12.4% | $6,870.84 |
| Medicare portion | $55,410 × 2.9% | $1,606.89 |
| Total self-employment tax | $55,410 × 15.3% | $8,477.73 |
| Deduction (half of SE tax) | $8,477.73 / 2 | $4,238.87 |
Source: IRS Schedule SE (Form 1040) and its instructions, applying the 92.35% factor and the 15.3% rate.
Because $55,410 is well below the Social Security wage base, the full 12.4% applies here. If your adjusted earnings were above the cap, only the amount up to the cap would be charged the Social Security portion, while the 2.9% Medicare portion would still apply to everything.
Can I deduct self-employment tax?
Yes, in part. You can deduct one-half of your self-employment tax as an adjustment to income when figuring your adjusted gross income. In the example above, that is $4,238.87.
This deduction reflects the fact that a normal employer's share of payroll tax is a business cost, not personal income, so you get to subtract the equivalent employer-side half. Two things to keep in mind: the deduction reduces your income tax, not your self-employment tax, and you can take it whether or not you itemize, because it is an above-the-line adjustment rather than an itemized deduction.
Who has to pay self-employment tax?
You generally owe self-employment tax if your net earnings from self-employment were $400 or more for the year. That covers most sole proprietors, independent contractors, freelancers, gig workers, and single-member LLC owners, as well as general partners in a partnership. A separate $108.28 threshold applies to church employee income.
The age rule surprises people: you owe SE tax no matter how old you are, and even if you are already collecting Social Security or Medicare. Because there is no employer withholding it for you, self-employed people usually pay this tax through quarterly estimated tax payments during the year rather than in one lump sum at filing.
A note on the numbers: the rates (15.3%, 12.4%, 2.9%, 0.9%), the 92.35% factor, and the $400 threshold are set in law and rarely change. The Social Security wage base is the piece that moves each year, so always confirm the current figure before you calculate. This explainer is general information, not tax advice. For your specific situation, consult the IRS or a qualified tax professional.
Sources
- The 15.3% rate, the 12.4% and 2.9% split, and the $400 threshold: IRS, Self-Employment Tax (Social Security and Medicare Taxes).
- The 92.35% factor (line 4a) and the $400 filing threshold: IRS, Instructions for Schedule SE, and the Schedule SE (Form 1040) form (PDF).
- Half-of-SE-tax deduction and general rules: IRS, Topic No. 554, Self-employment tax, and IRS, About Schedule SE (Form 1040).
- Social Security wage base by year ($176,100 for 2025, $184,500 for 2026): Social Security Administration, Contribution and Benefit Base.