How Self-Employment Tax Works
When you work for an employer, both you and your employer each pay 7.65% in FICA taxes (6.2% Social Security + 1.45% Medicare). As a self-employed person, you pay both sides — a total of 15.3% — because you are effectively both the employee and employer.
The SE Tax Calculation (Step by Step)
The IRS requires SE tax on 92.35% of net SE income, not 100%. The 7.65% reduction roughly accounts for the employer's matching portion. Here's the full calculation for $80,000 in net SE income:
- Net SE income: $80,000
- × 92.35% = SE income base: $73,880
- Social Security (12.4%): $73,880 × 12.4% = $9,161
- Medicare (2.9%): $73,880 × 2.9% = $2,143
- Total SE tax: $11,304
- Deductible half: $11,304 ÷ 2 = $5,652 (reduces your income tax)
2026 SE Tax Rates and Limits
| Component | Rate | Income Limit |
|---|---|---|
| Social Security | 12.4% | First $184,500 (2026 wage base) |
| Medicare | 2.9% | No limit |
| Additional Medicare Surtax | 0.9% | SE income over $200k (single) / $250k (MFJ) |
Frequently Asked Questions
What is self-employment tax?
SE tax is how freelancers, contractors, and sole proprietors pay Social Security and Medicare taxes. Regular employees have 7.65% withheld from paychecks and their employers match it. Self-employed people pay the full 15.3% themselves (on 92.35% of net income). In 2026, this applies to the first $184,500 of SE income for Social Security, with Medicare continuing on all income.
How is self-employment tax calculated?
Step 1: Subtract business expenses from gross revenue to get net SE income. Step 2: Multiply by 92.35% to get the SE income base. Step 3: Apply 12.4% Social Security (up to $184,500) and 2.9% Medicare. If SE income + other income exceeds $200,000 single (or $250,000 married), add 0.9% Medicare surtax. Step 4: You can deduct 50% of the total SE tax from your gross income.
Can I deduct self-employment tax?
Yes. You deduct exactly 50% of total SE tax as an above-the-line deduction on Schedule SE (flows to Form 1040, Line 10). This reduces your AGI and thus your income tax, but NOT the SE tax itself. On $11,304 SE tax: you deduct $5,652, saving $1,243 in federal income tax at the 22% bracket. This mimics how employees' employer matching is tax-deductible for employers.
When are quarterly estimated payments due in 2026?
April 15 (Q1), June 16 (Q2), September 15 (Q3), and January 15, 2027 (Q4). Miss a payment and you may owe an underpayment penalty, currently around 8% annualized. Safe harbor: pay at least 100% of last year's total tax (110% if last year's AGI exceeded $150,000) or 90% of this year's tax.
Do I have to pay SE tax on all freelance income?
If your net SE income is $400 or more for the year, you must file Schedule SE and pay SE tax. This applies to freelancing, gig work, consulting, and sole proprietor businesses. It does NOT apply to rental income (generally), investment income, W-2 wages, S-corp salary distributions, or hobby income below the $400 threshold.
How can I reduce self-employment tax?
1. Maximize business deductions — every dollar of deductions reduces SE income, saving 15.3 cents in SE tax and additional income tax. 2. Once profit exceeds ~$50,000-$60,000, consider electing S-corp status — S-corp distributions aren't subject to SE tax. 3. Contribute to a Solo 401(k) or SEP-IRA — contributions reduce your gross income (but not SE tax directly). 4. Document all legitimate business expenses meticulously.
What is the difference between SE tax and income tax?
SE tax is specifically Social Security + Medicare (15.3%), separate from federal income tax. You pay BOTH on the same self-employment income. At $80,000 net SE income, your SE tax is about $11,304 PLUS federal income tax on top of that. This is why self-employed people often feel their tax burden is higher — they're paying taxes that employers normally cover for employees.