Quick Answer
Self-employment tax is the Social Security and Medicare tax that small business owners, freelancers, and independent contractors must pay on their net earnings. For 2026, the self-employment tax rate is 15.3% (12.4% for Social Security up to the wage base of $174,000, plus 2.9% for Medicare with no cap). You calculate it on Schedule SE (Form 1040), and you can deduct the employer-equivalent portion (50%) on your income tax return.
What Is Self-Employment Tax?
When you work as an employee, your employer withholds Social Security and Medicare taxes from your paycheck and pays a matching amount. Together, these total 15.3% of your wages. When you are self-employed, you are both the employer and the employee, so you pay the entire 15.3% yourself. This combined tax is called the self-employment (SE) tax.
SE tax applies to individuals who have net earnings of $400 or more from self-employment during the tax year. This includes sole proprietors, independent contractors, partners in partnerships, and members of LLCs taxed as partnerships or disregarded entities.
2026 Self-Employment Tax Rates
| Component | Rate | Wage Base / Limit |
|---|---|---|
| Social Security (OASDI) | 12.4% | $174,000 (2026 wage base) |
| Medicare (HI) | 2.9% | No limit |
| Total SE Tax | 15.3% | Social Security capped; Medicare uncapped |
| Additional Medicare Tax | 0.9% | Income over $200,000 (single) / $250,000 (married filing jointly) |
How to Calculate Self-Employment Tax
Step 1: Determine Net Earnings
Start with your gross self-employment income and subtract your deductible business expenses. This gives you your net earnings from self-employment. If you have both self-employment income and W-2 wages, only the self-employment income is subject to SE tax.
Step 2: Apply the 92.35% Factor
You only pay SE tax on 92.35% of your net earnings. This adjustment mimics the employer's share that is deductible from income. Multiply your net earnings by 0.9235 to get your SE taxable income.
Step 3: Calculate Social Security and Medicare Portions
Apply the 12.4% Social Security rate to your SE taxable income (up to the $174,000 wage base, reduced by any W-2 wages already subject to Social Security tax). Then apply the 2.9% Medicare rate to your entire SE taxable income with no cap.
Numerical Example
A freelance graphic designer has net self-employment earnings of $100,000 in 2026 and no W-2 wages:
- SE taxable income: $100,000 x 0.9235 = $92,350
- Social Security tax: $92,350 x 12.4% = $11,451.40
- Medicare tax: $92,350 x 2.9% = $2,678.15
- Total SE tax: $14,129.55
Schedule SE: Filing Requirements
You file Schedule SE (Form 1040) along with your individual tax return. The schedule walks you through the calculation:
- Section A (Short Schedule SE): Use if your net earnings are under the Social Security wage base and you have no W-2 wages subject to Social Security.
- Section B (Long Schedule SE): Use if you have W-2 wages, your earnings exceed the Social Security wage base, or you have church employee income.
For more detail on estimated payment obligations that come with self-employment income, see our guide to quarterly estimated tax payments for small business.
The 50% SE Tax Deduction
One of the most important tax benefits for self-employed individuals is the deduction for the employer-equivalent portion of SE tax. You can deduct 50% of your SE tax on your Form 1040 (above the line, meaning you do not need to itemize).
In our example above, the deduction would be $14,129.55 x 0.50 = $7,064.78. This reduces your adjusted gross income and therefore your income tax liability.
Estimated Tax Payments
Because SE tax is not withheld by an employer, self-employed individuals must make quarterly estimated tax payments to avoid penalties. The payment deadlines for 2026 are:
| Quarter | Period Covered | Deadline |
|---|---|---|
| Q1 | Jan 1 - Mar 31 | April 15, 2026 |
| Q2 | Apr 1 - May 31 | June 15, 2026 |
| Q3 | Jun 1 - Aug 31 | September 15, 2026 |
| Q4 | Sep 1 - Dec 31 | January 15, 2027 |
Each payment should cover both income tax and SE tax. A safe harbor is to pay at least 100% of your prior-year tax liability (110% if your AGI exceeds $150,000) or 90% of your current-year liability. For a deeper dive, consult our estimated tax payments guide.
Self-Employment Tax for Different Business Structures
Sole Proprietorships
Sole proprietors report business income on Schedule C and calculate SE tax on Schedule SE. All net profit is subject to SE tax.
Partnerships and Multi-Member LLCs
Partners and LLC members report their share of partnership income on Schedule K-1. Guaranteed payments and distributive shares of ordinary income are subject to SE tax. However, limited partners are generally exempt from SE tax on their distributive share, though guaranteed payments are still subject.
S-Corporations
S-Corporation owners who perform services for the business must take a reasonable salary, which is subject to FICA taxes (Social Security and Medicare) through payroll. Distributions above the salary are not subject to SE tax, which can result in significant savings. However, the IRS closely scrutinizes unreasonable compensation arrangements.
Common Mistakes to Avoid
- Not making estimated payments. Waiting until you file your return to pay SE tax results in underpayment penalties. Make quarterly payments to stay compliant. If you also have employees, our payroll compliance guide for small business covers the employer-side obligations.
- Forgetting the 50% deduction. Many self-employed individuals overlook the above-the-line deduction for half of their SE tax, unnecessarily increasing their income tax.
- Underreporting income. All 1099-NEC and 1099-MISC forms are reported to the IRS. Failing to report all self-employment income can trigger audits and penalties.
- Misclassifying workers. Treating employees as independent contractors to avoid paying the employer share of FICA is a significant compliance risk. The IRS uses a 20-factor test to determine worker classification.
- Ignoring state obligations. Many states have additional self-employment or payroll tax requirements. Check your state's rules for estimated tax and filing requirements.
Reducing Self-Employment Tax Legally
While you cannot avoid SE tax entirely on self-employment income, there are legitimate strategies to reduce it:
- Maximize business deductions. Every dollar of deductible expense reduces your net earnings and therefore your SE tax. Track all ordinary and necessary business expenses carefully.
- Consider S-Corporation election. If your net earnings are substantial, electing S-Corporation status may allow you to take part of your income as distributions not subject to SE tax.
- Contribute to a retirement plan. Contributions to a Solo 401(k) or SEP-IRA reduce your income tax but not your SE tax directly. However, the overall tax savings can be significant.
- Hire your spouse. If your spouse works in the business, paying them a reasonable wage shifts income and may allow you to set up a medical expense reimbursement plan.
Self-Employment Tax and Payroll Entries
If your business has employees in addition to your own self-employment income, you must handle both SE tax (for yourself) and payroll taxes (for your employees). The journal entries for payroll cover the employer-side withholdings, while your SE tax is handled through estimated payments and your personal return.
Key Takeaways
- The self-employment tax rate is 15.3% (12.4% Social Security + 2.9% Medicare) on 92.35% of net earnings.
- Social Security tax applies only up to the annual wage base ($174,000 for 2026); Medicare has no cap.
- You can deduct 50% of your SE tax as an above-the-line deduction on Form 1040.
- Quarterly estimated payments are required to avoid underpayment penalties.
- S-Corporation election can reduce SE tax for owners who take reasonable salaries plus distributions.
- Track all business deductions carefully to minimize net earnings subject to SE tax.
