How self-employment tax works
When you're self-employed, you pay both the employer and employee portions of Social Security and Medicare taxes, that's the self-employment tax. Here's the step-by-step process this freelance tax calculator follows:
- Calculate net SE income: Gross 1099/business income minus business expenses.
- Apply the 92.35% factor: Multiply net income by 0.9235 to get the SE tax base.
- Calculate Social Security: 12.4% on the SE base, up to the $184,500 wage base (minus any W-2 wages).
- Calculate Medicare: 2.9% on the entire SE base, plus 0.9% Additional Medicare Tax above $200K.
- Deduct half: Subtract 50% of the SE tax from your AGI before computing income tax.
Tip: Self-employment tax is in addition to federal income tax. A $100K freelancer pays ~$14,130 in SE tax plus income tax on top, use this independent contractor tax calculator to see the full picture.
The 15.3% SE tax rate breakdown
The self-employment tax rate of 15.3% consists of:
Social Security
12.4%
On SE base up to $184,500
Medicare
2.9%
On all SE base (no cap)
Additional Medicare
+0.9%
On income above $200K (single)
| Component | Rate | Applies To |
|---|---|---|
| Social Security | 12.4% | SE base up to $184,500 |
| Medicare | 2.9% | All SE base (no cap) |
| Additional Medicare | +0.9% | Combined income above $200K/$250K |
For W-2 employees, the employer pays half (7.65%) and the employee pays half. When you're self-employed, you pay the full 15.3%, but get to deduct half when calculating income tax.
The 92.35% rule
Before applying the 15.3% rate, the IRS multiplies your net SE income by 92.35% (1 − 7.65%). This simulates the fact that W-2 employers deduct their share of FICA before calculating the employee's tax. On $100,000 net SE income, you'd pay tax on $92,350, not the full $100,000.
SE Tax Base = Net SE Income × 92.35%
2026 thresholds
| Threshold | 2026 Amount |
|---|---|
| Social Security wage base | $184,500 |
| Additional Medicare threshold (single) | $200,000 |
| Additional Medicare threshold (married) | $250,000 |
| Minimum SE income for SE tax | $400 |
Example: $100K net self-employment income
A single freelancer earns $100,000 net (after expenses), no other W-2 income:
- SE tax base: $100,000 × 92.35% = $92,350
- Social Security: $92,350 × 12.4% = $11,451
- Medicare: $92,350 × 2.9% = $2,678
- Total SE tax: $11,451 + $2,678 = $14,130
- Half-SE deduction: $14,130 ÷ 2 = $7,065 (reduces income tax)
- Federal income tax: ≈ $11,616
Result: SE tax $14,130 + income tax $11,616 = $25,745 total tax (25.7% effective rate). Quarterly payment: $6,436
Quarterly estimated payments
Unlike W-2 employees who have taxes withheld each paycheck, self-employed individuals must send quarterly estimated payments to the IRS using Form 1040-ES. The deadlines for 2026 income are:
| Period | Due Date |
|---|---|
| Q1 (Jan–Mar) | April 15, 2026 |
| Q2 (Apr–May) | June 15, 2026 |
| Q3 (Jun–Aug) | September 15, 2026 |
| Q4 (Sep–Dec) | January 15, 2027 |
Deducting half of SE tax
The IRS lets you deduct 50% of your self-employment tax as an above-the-line deduction (Form 1040, Schedule 1, Line 15). This mirrors the fact that employers deduct their FICA share as a business expense. In our $100K example, that's a $7,065 deduction, saving roughly $1,554 in income tax at the 22% bracket.
SE tax vs. employment tax
How does self-employment tax compare to what W-2 employees pay?
W-2 Employee
- Pays 7.65% FICA (6.2% SS + 1.45% Medicare)
- Employer pays the other 7.65%
- Taxes withheld each paycheck
- No quarterly payments needed
Self-Employed
- Pays full 15.3% (both halves)
- Applied to 92.35% of net income
- Must make quarterly estimated payments
- Can deduct half of SE tax from AGI
FAQs
What is self-employment tax?
Self-employment tax is the Social Security and Medicare tax that self-employed individuals pay on their net business income. It's the equivalent of the FICA taxes that employers and employees split, but since you're both, you pay both halves. The total self-employment tax rate is 15.3% (12.4% Social Security + 2.9% Medicare), applied to 92.35% of your net SE income.
What is the self-employment tax rate?
The self-employment tax rate is 15.3%, which breaks down as 12.4% for Social Security and 2.9% for Medicare. This is applied to 92.35% of your net self-employment income (the 92.35% factor adjusts for the fact that employers deduct their share before calculating tax). If you earn above $200,000 (single), an additional 0.9% Medicare surtax applies.
Who pays self-employment tax?
Anyone who earns $400 or more in net self-employment income must pay SE tax. This includes freelancers, independent contractors (1099 workers), sole proprietors, partners in a partnership, and gig economy workers (Uber, DoorDash, Etsy, etc.). If you receive a 1099-NEC or 1099-K, you likely owe self-employment tax.
How is self-employment tax different from income tax?
Self-employment tax covers Social Security and Medicare only, it's separate from federal income tax. You pay both on your SE income. SE tax is a flat 15.3% (on 92.35% of net income), while income tax uses progressive brackets (10%–37%). The good news: you can deduct half of your SE tax when calculating income tax, which reduces your overall tax burden.
Can I deduct half of self-employment tax?
Yes. You can deduct the employer-equivalent portion (50%) of your self-employment tax as an above-the-line deduction on your income tax return (Form 1040, Schedule 1). This reduces your adjusted gross income, which in turn reduces your federal income tax. Note: this only reduces income tax, it does not reduce the SE tax itself.
When are quarterly estimated tax payments due?
Quarterly estimated payments (Form 1040-ES) are due: Q1, April 15, Q2, June 15, Q3, September 15, Q4, January 15 of the following year. You generally must make estimated payments if you expect to owe $1,000 or more in tax after withholding and credits. Missing payments triggers an underpayment penalty.
What happens if I don't pay quarterly estimated taxes?
The IRS charges an underpayment penalty (currently ~8% annual interest rate) on each missed or late quarterly payment. The penalty is calculated on a per-quarter basis. To avoid it, pay at least 90% of your current year's tax or 100% of your prior year's tax (110% if your AGI was over $150,000) through estimated payments or withholding.
Do I pay self-employment tax on all my income?
No, only on net self-employment income (gross revenue minus business expenses). Wages from a W-2 employer are subject to regular FICA withholding, not SE tax. Rental income, investment income (dividends, capital gains), and S-corp distributions are generally not subject to SE tax. Only Schedule C (or Schedule K-1 partnership) income triggers SE tax.
What is the $400 self-employment income threshold?
If your net self-employment income is less than $400 for the year, you do not owe self-employment tax. However, you may still need to file a tax return and report the income for income tax purposes. The $400 threshold applies to net income (after business expenses), not gross revenue.
How can I reduce my self-employment tax?
Common strategies include: 1) Maximize business deductions (home office, equipment, vehicle, health insurance). 2) Contribute to a SEP-IRA or Solo 401(k), reduces income tax (not SE tax, but lowers total burden). 3) Consider electing S-corp status, pay yourself a "reasonable salary" and take remaining profit as distributions not subject to SE tax. 4) Hire your children under 18 (their wages are deductible and not subject to FICA if you're a sole proprietor).