Yes, business owners pay Social Security taxes, and they pay Medicare taxes alongside them. How you pay depends on how the business is set up. If you’re a sole proprietor, partner, or single-member LLC owner, you pay a combined 15.3% self-employment tax on your net earnings. If you run a corporation and take a salary, the same 15.3% is split in half: you pay 7.65% through payroll withholding and the corporation pays a matching 7.65%. For 2026, the Social Security portion applies only to the first $184,500 of earnings; the Medicare portion has no ceiling.
If You’re Self-Employed
Sole proprietors, general partners, and single-member LLC owners (which the IRS treats as sole proprietorships by default) pay Social Security and Medicare through the self-employment tax. The combined rate is 15.3%, made up of 12.4% for Social Security and 2.9% for Medicare.1Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes) You owe both halves because there’s no separate employer writing a matching check. Members of multi-member LLCs taxed as partnerships pay the same tax on their share of partnership earnings.2Internal Revenue Service. LLC Filing as a Corporation or Partnership
You don’t apply 15.3% to your entire net profit. Start with net profit from Schedule C (gross income minus allowable business deductions), then multiply by 92.35%. That reduced figure is what the IRS calls net earnings from self-employment, and the multiplier mirrors the fact that regular employees don’t pay FICA on the employer’s share of the tax.3Internal Revenue Service. Topic No. 554, Self-Employment Tax
A quick example. Net profit of $100,000 becomes $92,350 in taxable self-employment earnings ($100,000 × 0.9235). Self-employment tax on that is roughly $14,130 ($92,350 × 15.3%). You calculate it on Schedule SE and file it with your Form 1040.4Internal Revenue Service. Instructions for Schedule SE Without the 92.35% step, that same $100,000 would generate about $15,300 in tax, so the multiplier matters.
If You Run a Corporation and Draw a Salary
Owners of C-corporations and S-corporations who pay themselves a salary go through the same FICA system as any W-2 employee. The total tax is still 15.3%, but it’s split evenly. You pay 7.65% through paycheck withholding (6.2% Social Security plus 1.45% Medicare), and the corporation pays a matching 7.65%.5Office of the Law Revision Counsel. 26 USC 3101 – Rate of Tax6Office of the Law Revision Counsel. 26 USC 3111 – Rate of Tax The corporation sends both halves to the IRS through payroll.
FICA applies to W-2 wages only. It does not apply to C-corporation dividends or S-corporation distributions. That gap is where planning happens, and it’s also where trouble starts.
The S-Corporation Reasonable Compensation Rule
Because S-corporation distributions escape FICA, some owners try to pay themselves a token salary and take everything else as distributions. The IRS watches this closely. If you’re a shareholder who performs more than minor services for your S-corporation, the company must pay you reasonable compensation before making distributions.7Internal Revenue Service. S Corporation Employees, Shareholders and Corporate Officers
Reasonable means fair market compensation for the work actually performed, not whatever number is convenient at tax time. In one case, the Eighth Circuit held that a shareholder who paid himself $24,000 while taking large distributions couldn’t rely on his intent to keep wages low; that intent wasn’t a controlling factor.7Internal Revenue Service. S Corporation Employees, Shareholders and Corporate Officers Factors that matter include the owner’s training and experience, duties and hours, what comparable businesses pay for similar roles, and the company’s overall financial performance. If the IRS reclassifies distributions as wages, you owe back employment taxes, penalties, and interest on the full reclassified amount.
An LLC can elect S-corporation tax treatment by filing Form 2553.8Internal Revenue Service. About Form 2553, Election by a Small Business Corporation After the election, the owner pays FICA only on W-2 salary; distributions above the salary aren’t hit with self-employment tax. This can produce real savings for a profitable business, but the reasonable compensation rules still apply, and the election makes little sense when nearly all the profit is really pay for the owner’s labor.
The 2026 Social Security Wage Base
The 12.4% Social Security tax stops at a ceiling. For 2026, that ceiling is $184,500.9Social Security Administration. Contribution and Benefit Base Every dollar above that is free of Social Security tax whether you pay through FICA or self-employment tax. The cap adjusts each year with the national average wage index.
At exactly $184,500 in W-2 wages, a corporate employee-owner’s maximum Social Security contribution is $11,439, matched by the corporation for a combined $22,878.9Social Security Administration. Contribution and Benefit Base A self-employed owner reaches the same cap but pays the full 12.4% themselves.
The 2.9% Medicare portion has no cap. It applies to every dollar of net earnings or W-2 wages.
Additional Medicare Tax at Higher Incomes
An extra 0.9% Medicare tax applies once earnings cross these thresholds:10Internal Revenue Service. Topic No. 560, Additional Medicare Tax
- $200,000 for single filers and heads of household
- $250,000 for married couples filing jointly
- $125,000 for married individuals filing separately
The individual pays this entire amount. The corporation doesn’t match it, and self-employed owners can’t deduct any portion.11Internal Revenue Service. Questions and Answers for the Additional Medicare Tax
Deducting What You Pay
Self-employed owners deduct half of their self-employment tax when calculating adjusted gross income. The deduction represents the employer-equivalent portion, and you get it even if you don’t itemize. It reduces your income tax but not the self-employment tax itself.1Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes)
For a corporate employee-owner, the 7.65% withheld from your paycheck isn’t deductible on your personal return; it’s treated like any other employee’s withholding. The corporation deducts its matching 7.65% as an ordinary business expense.
When and How You Actually Pay
Corporate owners pay through payroll each pay period, and the corporation remits the money to the IRS on the regular deposit schedule. Self-employed owners have no employer doing this for them, so the IRS expects four estimated tax payments a year covering both income tax and self-employment tax.12Internal Revenue Service. Self-Employed Individuals Tax Center You calculate and submit them on Form 1040-ES.
For 2026, the payment deadlines are:13Internal Revenue Service. 2026 Form 1040-ES
- April 15, 2026 (income earned January through March)
- June 15, 2026 (April and May)
- September 15, 2026 (June through August)
- January 15, 2027 (September through December)
You can skip the January payment if you file your 2026 return and pay the balance by February 1, 2027. Falling short triggers an underpayment penalty. For the first quarter of 2026, the IRS charges 7% annual interest, compounded daily, on the shortfall, and the rate is recalculated each quarter.14Internal Revenue Service. Interest Rates Remain the Same for the First Quarter of 2026
Corporate owners face a separate and much heavier risk. The employee share of FICA that a corporation withholds from paychecks is a trust fund tax: money held in trust for the government. If a responsible person willfully fails to remit it, the IRS can assess a trust fund recovery penalty for the full unpaid amount plus interest against that person individually. Willfully doesn’t require bad intent; paying rent or suppliers ahead of payroll taxes qualifies. Officers, partners, and even employees with check-signing authority can be personally liable, and the penalty pierces the corporate liability shield.15Internal Revenue Service. Trust Fund Recovery Penalty
What You Get for Paying
Paying these taxes is what builds your Social Security retirement, disability, and survivor benefits. You earn credits (formerly called quarters of coverage) based on annual earnings, up to four credits a year. For 2026, one credit takes $1,890 in earnings, so $7,560 earns the full four.16Social Security Administration. Quarter of Coverage Most workers need 40 credits, roughly 10 years of work, to qualify for retirement benefits.
One quirk for self-employed owners: if net earnings fall below $400 in a year, you owe no self-employment tax, but you also earn no Social Security credits for that year. If you’re closing in on 40 credits, a slow year can push eligibility back.