What is the self-employment tax rate?

The self-employment tax rate is 15.3%: 12.4% for Social Security and 2.9% for Medicare. You pay this on 92.35% of your net self-employment income, not on your gross revenue.

Can I deduct self-employment tax on my income tax return?

Yes, you can deduct 50% of your regular self-employment tax (the employer-equivalent portion, not including Additional Medicare Tax) as an above-the-line deduction on Form 1040. This reduces your adjusted gross income and your income tax. It does not reduce your self-employment tax.

Who has to pay self-employment tax?

Anyone with net earnings from self-employment of $400 or more for the year generally must pay self-employment tax. Schedule SE figures net earnings after the 92.35% adjustment. This includes freelancers, sole proprietors, independent contractors, gig workers, and general partners in a partnership.

How do I pay self-employment tax throughout the year?

You pay self-employment tax through quarterly estimated tax payments using Form 1040-ES. The 2026 quarterly tax schedule lists every due date. Underpaying brings IRS penalties with interest.

Can an S-corp election reduce my self-employment tax?

Yes. An S-corp pays you a reasonable salary (subject to FICA taxes). Remaining profits come out as distributions with no self-employment tax. This can save thousands annually. It only makes sense when net income covers the added payroll and filing costs.

What is the additional Medicare tax and when does it apply?

The additional Medicare tax is an extra 0.9% on self-employment earnings above $200,000 for single filers ($250,000 for married filing jointly). This brings the total Medicare rate on earnings above that threshold to 3.8%. There is no employer-equivalent deduction for this additional tax.

Self-Employment Tax Guide: Rates, Calculations & Deductions (2026)

Self-employment tax is the 15.3% tax that freelancers, sole proprietors, and independent contractors pay to cover Social Security and Medicare, the same programs that W-2 employees fund through payroll withholding. You owe this tax on top of your regular income tax when your net earnings from self-employment are $400 or more.

This guide breaks down how self-employment tax works, walks through a calculation with real numbers, and covers the strategies that legally reduce what you owe.

What Is Self-Employment Tax?

Self-employment tax is the self-employed person’s version of FICA taxes (Federal Insurance Contributions Act). Employers split FICA in half. The employer pays 7.65% and withholds another 7.65% from the paycheck. Self-employed workers pay the full 15.3%, both halves.

That 15.3% breaks down into two parts:

Component	Rate	2026 Wage Base
Social Security (OASDI)	12.4%	First $184,500 of net earnings
Medicare (HI)	2.9%	All net earnings, no cap
Additional Medicare Tax	0.9%	Earnings above $200,000 (single)

The Social Security portion has an annual wage base cap. Net self-employment earnings above the $184,500 cap for 2026 owe no 12.4% Social Security portion. Medicare has no cap. You pay 2.9% on every dollar of net self-employment earnings.

Self-employment tax and income tax are two separate obligations. SE tax is calculated on Schedule SE and added to your total tax liability on Form 1040.

Who Pays Self-Employment Tax?

You generally owe self-employment tax when your net earnings from self-employment are $400 or more for the tax year. Schedule SE measures this after the 92.35% adjustment. Schedule C profit of $400 produces adjusted earnings of $369.40. This applies to:

Sole proprietors reporting business income on Schedule C
Freelancers and independent contractors receiving 1099-NEC forms
Single-member LLC owners (taxed as sole proprietorships by default)
General partners in a partnership
Gig economy workers (rideshare drivers, delivery couriers, platform-based freelancers)
Side hustlers earning money outside a W-2 job

Our guide on 1099 vs W-2 differences explains how to determine your worker classification.

Who does not pay self-employment tax? S-corp shareholders do not pay SE tax on distributions. Their W-2 salary from the S-corp is subject to payroll tax instead. Limited partners generally do not pay SE tax on their share of partnership income. Rental real estate income is generally excluded from self-employment tax, with exceptions such as dealer activity or substantial services provided to tenants.

How to Calculate Self-Employment Tax: Step by Step

Calculate self-employment tax in four steps: net income, the 92.35% adjustment, the 15.3% rate and the Additional Medicare check.

Step 1: Determine Your Net Self-Employment Income

Start with your gross business revenue and subtract all legitimate business deductions: supplies, software, home office, mileage, insurance, and everything else that qualifies. The result is your net self-employment income, reported on Schedule C (line 31) for sole proprietors.

Step 2: Apply the 92.35% Multiplier

The IRS does not charge self-employment tax on 100% of your net income. Instead, you multiply your net self-employment income by 92.35% (or 0.9235). This adjustment exists because W-2 employees do not pay FICA on the employer-paid portion of their FICA taxes. The multiplier gives self-employed individuals the same treatment.

Step 3: Apply the SE Tax Rate

Multiply your adjusted amount by 15.3% (up to the Social Security wage base). Adjusted net earnings above the $184,500 Social Security wage base for 2026 owe only the 2.9% Medicare rate.

Side hustlers with a W-2 job: W-2 wages count toward the $184,500 base first (Schedule SE handles this) and toward the Additional Medicare Tax threshold.

Step 4: Check for Additional Medicare Tax

Self-employment earnings above $200,000 (single) or $250,000 (married filing jointly) owe an additional 0.9% Medicare tax on the excess.

Calculation Walkthrough: $80,000 Net Income Example

Alex is a freelance web developer with $80,000 in net self-employment income after business expenses on Schedule C.

The Math

Step 1: Net self-employment income: $80,000

Step 2: Apply the 92.35% multiplier:

$80,000 x 0.9235 = $73,880

This $73,880 figure is Alex’s taxable self-employment earnings, the base on which SE tax is calculated.

Step 3: Calculate SE tax at 15.3%:

$73,880 x 0.153 = $11,303.64

$73,880 is below the $184,500 Social Security wage base. The full 15.3% applies.

Step 4: Check for additional Medicare tax:

$73,880 is below $200,000. No additional Medicare tax applies.

Alex’s total self-employment tax: $11,303.64

Breaking Down What Alex Pays

Tax Component	Calculation	Amount
Social Security (12.4%)	$73,880 x 12.4%	$9,161.12
Medicare (2.9%)	$73,880 x 2.9%	$2,142.52
Total SE Tax		$11,303.64

The Deduction Alex Gets Back

Alex can deduct the employer-equivalent half of this self-employment tax on Form 1040 as an above-the-line deduction:

$11,303.64 / 2 = $5,651.82

This $5,651.82 deduction reduces Alex’s adjusted gross income. His income tax falls with it. It does not reduce his self-employment tax. At the 22% bracket and ignoring the qualified business income deduction, this deduction saves Alex roughly $1,243 in income tax.

Alex’s cost of SE tax after the income tax savings: approximately $10,060 ($11,303.64 - $1,243.40).

How to Deduct the Employer-Equivalent Portion

This deduction is one of the most important tax benefits for self-employed individuals.

Divide the Schedule SE result in half. That half represents the “employer portion”, the share an employer would have paid on your behalf in a traditional employment arrangement. You claim this amount on Schedule 1, Line 15 of your Form 1040.

This is an above-the-line deduction, which means:

You get it whether you itemize deductions or take the standard deduction
It reduces your adjusted gross income (AGI), which can help you qualify for other tax benefits that phase out at higher AGI levels
It reduces your income tax. It does not reduce your SE tax calculation

Include this deduction in your estimated tax projections to see your effective tax rate.

Additional Medicare Tax: The 0.9% Surcharge

High earners face an extra layer of Medicare tax. The additional 0.9% applies to earnings above these thresholds:

Filing Status	Threshold
Single	$200,000
Married filing jointly	$250,000
Married filing separately	$125,000

Example: High-Earner Calculation

Jordan is a single, self-employed consultant with $280,000 in net self-employment income and no other wages.

Adjusted earnings: $280,000 x 0.9235 = $258,580
Regular SE tax (15.3% on first $184,500): $28,228.50
Medicare only on excess (2.9% on $258,580 - $184,500 = $74,080): $2,148.32
Additional Medicare tax (0.9% on $258,580 - $200,000 = $58,580): $527.22
Total SE tax: $30,904.04 ($28,228.50 + $2,148.32 + $527.22)

The additional Medicare tax does not have an employer-equivalent deduction. You absorb the full 0.9% yourself. This is reported on Form 8959 and added to your tax liability on Form 1040.

Quarterly Estimated Tax Payment Obligations

Pay SE tax and income tax together in four quarterly installments through IRS Direct Pay or your IRS Online Account. Individuals can no longer create new EFTPS accounts.

The 2026 quarterly tax schedule lists every due date. The quarterly estimated tax payments guide shows worked examples.

6 Strategies to Lower Your Tax Bill When You Are Self-Employed

IRS-approved strategies can reduce what you owe. These are ranked roughly by impact.

1. Elect S-Corp Taxation

S-corp election cuts SE tax most for profitable businesses. An LLC or sole proprietorship that files Form 2553 splits income into two categories:

Reasonable salary: subject to FICA/payroll taxes (equivalent to SE tax)
Distributions: not subject to self-employment tax

Example: A business netting $120,000 that pays the owner a reasonable salary of $70,000 has only that $70,000 subject to payroll taxes. The remaining profit taken as distributions avoids the 15.3%. As a sole proprietor you would owe about $16,955 in SE tax ($120,000 x 92.35% x 15.3%). As an S-corp you would owe about $10,710 in payroll taxes ($70,000 x 15.3%), a saving of roughly $6,245 per year before the extra S-corp costs. The business pays the employer half of that payroll tax ($5,355). Distributions are about $44,645 ($120,000 - $70,000 - $5,355).

The catch: You must pay yourself a “reasonable salary” because the IRS scrutinizes S-corps that pay unreasonably low salaries to dodge payroll taxes. You also have the added costs of payroll processing, S-corp tax return filing (Form 1120-S), and potentially higher accounting fees. Many tax professionals suggest this strategy begins to make sense when net income consistently exceeds $50,000 to $60,000. Our LLC tax guide covers the S-corp election process in detail.

2. Use Retirement Contributions to Offset Income Tax

Contributing to a tax-advantaged retirement plan lowers your income tax. Plan contributions generally do not reduce your self-employment tax.

Plan	2026 Contribution Limit	Income Tax Savings Potential
SEP IRA	Up to 20% of net SE earnings after the deduction for half of SE tax (max $72,000)	Significant
Solo 401(k)	$24,500 employee + employer contributions of up to 20% of net SE earnings after the deduction for half of SE tax (max $72,000 total)	Highest
SIMPLE IRA	$17,000 employee deferral + employer match up to 3% of pay, or a 2% nonelective contribution	Moderate

Example: Contributing $24,500 to a Solo 401(k) lowers your income tax. The deferral is deducted from taxable income. It does not lower your self-employment tax. That tax is still calculated on net self-employment earnings before the deferral.

3. Claim Every Legitimate Business Deduction

Every dollar in deductible business expenses reduces net self-employment income. Both your income tax and SE tax fall. Common business expenses that lower your SE tax include:

Home office deduction
Vehicle mileage or actual expenses
Software and technology subscriptions
Professional development and education
Business insurance premiums
Marketing and advertising costs

Categorize expenses against IRS-aligned categories as transactions come in. Nothing then slips through the cracks at calculation time.

4. Hire Family Members

Your spouse’s wages are a deductible expense that reduces your net SE income. Wages paid to your children under 18 for legitimate work are generally exempt from Social Security and Medicare taxes when the business is a sole proprietorship, or a partnership in which each partner is a parent of the child. A child’s own income tax is separate: for 2026 a dependent’s standard deduction is generally the greater of $1,350 or earned income plus $450, up to the $16,100 single standard deduction, so a child with only earned income generally owes no federal income tax on earnings up to $16,100.

5. Use the Right Business Structure

Your business structure directly affects how much self-employment tax you pay. Here is a quick comparison:

Structure	SE Tax Treatment
Sole proprietorship	15.3% on 92.35% of net earnings (Social Security portion capped, Additional Medicare Tax above thresholds)
Single-member LLC	Same as sole proprietorship (default)
LLC taxed as S-corp	Payroll taxes on salary only, not distributions (7.65% each for employer and employee, Social Security part capped at the wage base, plus 0.9% Additional Medicare on the owner’s wages over $200,000, or $250,000 married filing jointly and $125,000 married filing separately)
Partnership	Same SE tax rules as a sole proprietor for general partners
S-corporation	Payroll taxes on salary only (7.65% each for employer and employee, Social Security part capped at the wage base, plus 0.9% Additional Medicare on the owner’s wages over $200,000, or $250,000 married filing jointly and $125,000 married filing separately)

A consistently profitable sole proprietorship should run the numbers on an S-corp election with a tax advisor.

6. Time Your Income and Expenses Strategically

Timing invoices and large purchases can reduce your SE tax. Accelerate deductions by prepaying annual subscriptions or buying equipment before year-end. Defer income by pushing an invoice to January if you are close to a tax threshold. These timing moves stay within the rules.

Common Self-Employment Tax Mistakes to Avoid

Forgetting the 92.35% multiplier. Calculating SE tax on full net income overstates the amount owed.
Not making quarterly payments. Self-employment tax does not come due only at filing time. You are expected to pay as you earn throughout the year.
Missing the employer-half deduction. This above-the-line deduction reduces your income tax and is easy to overlook if you are preparing your own return.
Skipping the S-corp evaluation. Net income above $50,000 to $60,000 year after year can cost thousands in extra SE tax.
Not tracking business expenses throughout the year. Poor bookkeeping leads to a higher Schedule C profit and higher SE tax. Real-time expense tracking keeps you from missing a legitimate deduction.

Keep More of What You Earn

For someone earning $80,000 in net self-employment income, the $11,304 SE tax bill is more than 14% of earnings.

This tax is predictable once you know the formula. Calculate it correctly, make quarterly payments on time, claim the employer-half deduction, and evaluate the S-corp election. Retirement contributions help on the income tax side.

Track your income and expenses throughout the year, estimate your self-employment tax liability as the year progresses and note your quarterly payment dates in your calendar.