Self-Employment Tax: Rates, Deductions, and Estimated Payments

Self-employment tax is a 15.3% federal tax on your net earnings from self-employment that covers the Social Security and Medicare contributions an employer would otherwise split with you. You owe it once your net self-employment earnings reach $400 in a year, and it applies on top of regular income tax. If you freelance, run a sole proprietorship, work as an independent contractor, or earn money through a partnership, the full amount falls on you.

Who Owes It

You owe self-employment tax when your net earnings from self-employment reach at least $400 during the tax year.¹ Net earnings means the profit left after subtracting allowable business expenses from your gross income. Bring in $50,000 in freelance revenue and spend $20,000 on legitimate business expenses, and your net earnings are $30,000. That figure is the starting point for the calculation.

The threshold is deliberately low. It captures most people earning income outside traditional employment, including gig workers, consultants, and side sellers. Employees of qualifying church organizations face an even lower threshold of $108.28 in annual earnings.²

Rental income is generally not subject to self-employment tax. The IRS treats most rental activity as passive income. The main exceptions involve real estate professionals who spend the bulk of their working hours in the industry, or landlords who provide substantial services beyond basic maintenance, such as running a bed-and-breakfast or offering concierge-level amenities.

How the 15.3% Rate Breaks Down

The rate has two parts:²

12.4% for Social Security, which funds retirement, disability, and survivor benefits. It applies only up to the annual wage base, which is $184,500 for 2026. Every dollar of net self-employment income above that cap is exempt from the Social Security portion.³
2.9% for Medicare, which funds hospital insurance. There’s no earnings cap. Every dollar of net self-employment income is subject to it.³

You don’t apply 15.3% to your full net profit. First, multiply your net earnings by 92.35%, then apply the tax rate to that reduced figure.⁴ The adjustment mirrors what traditional employers get, since they deduct their share of FICA as a business expense. The 92.35% multiplier gives you equivalent treatment.

Additional Medicare Tax for Higher Earners

If your self-employment income exceeds certain thresholds, you owe an extra 0.9% Medicare surtax on the amount above the limit:⁵

$250,000 for married filing jointly
$125,000 for married filing separately
$200,000 for single and all other filers

These thresholds are not indexed for inflation and have not changed since the surtax took effect. A single freelancer with $250,000 in net self-employment income would owe the standard 2.9% Medicare tax on the full amount plus 0.9% on the $50,000 above the $200,000 threshold.

The Deduction That Offsets Your Income Tax

Traditional employees pay only half of FICA; the employer covers the rest. To match that, you can deduct the employer-equivalent portion of your self-employment tax (half of the total) when calculating your adjusted gross income.⁴ It’s an above-the-line deduction, so you claim it whether or not you itemize. It doesn’t reduce your self-employment tax itself. It lowers your income tax bill.

A Worked Example

Say your Schedule C shows $80,000 in net profit for 2026:

Taxable base: $80,000 × 92.35% = $73,880
Social Security portion: $73,880 × 12.4% = $9,161
Medicare portion: $73,880 × 2.9% = $2,143
Total self-employment tax: $11,304
Above-the-line deduction: $11,304 ÷ 2 = $5,652 (reduces income tax, not SE tax)

Since $73,880 falls well below the $184,500 wage base, the full amount is subject to both Social Security and Medicare. The $5,652 comes off your adjusted gross income on Form 1040, which slightly reduces your regular income tax.

Forms You’ll File

Self-employment tax isn’t a standalone return. It flows through schedules attached to Form 1040:

Schedule C reports business income and expenses for a sole proprietor or single-member LLC. The bottom line is your net profit or loss. Farmers use Schedule F instead.⁶⁷
Schedule SE takes the net profit from Schedule C or F and runs it through the calculation: 92.35% multiplier, 15.3% rate, wage base cap, and employer-equivalent deduction.⁸
Schedule 1 is where the employer-equivalent deduction gets recorded as an adjustment to income.

Accuracy across these forms matters more than people realize. Net profit on Schedule C feeds directly into Schedule SE, which determines both your tax liability and the earnings credited to your Social Security record. Understating income saves you tax now but reduces the retirement and disability benefits you’ll collect later. The Social Security Administration uses these reported earnings to calculate your future payments.

Quarterly Estimated Payments

The federal tax system is pay-as-you-go. W-2 employees have taxes withheld from each paycheck. Self-employed workers send their own payments through the year. If you expect to owe $1,000 or more when you file, the IRS expects quarterly estimated payments.⁹

For the 2026 tax year, the four deadlines are:⁹

First quarter: April 15, 2026
Second quarter: June 15, 2026
Third quarter: September 15, 2026
Fourth quarter: January 15, 2027

The second and third quarters are only two months apart, while the third and fourth are four months apart. That trips people up in their first year. You can skip the January 15 payment if you file your full 2026 return and pay the balance by February 1, 2027.⁹

Use Form 1040-ES to estimate your quarterly amount. The worksheet walks you through projecting your annual income, applying the 92.35% multiplier, calculating self-employment tax and income tax together, and dividing the total into four installments. If your income is uneven, you can use the annualized installment method on Form 2210 to weight payments toward the quarters where you actually earned the money.

Safe Harbors That Protect You From Penalties

You avoid the underpayment penalty if any of these are true:¹⁰

You owe less than $1,000 after subtracting withholding and credits from your total tax.
You paid at least 90% of the tax shown on your current-year return.
You paid at least 100% of the tax shown on your prior-year return, or 110% if your prior-year AGI exceeded $150,000 ($75,000 if married filing separately).

The prior-year safe harbor helps during your first years of self-employment, when income is unpredictable. If you had a full-time job last year with a modest tax liability, basing quarterly payments on 100% of that prior amount keeps you penalty-free even if freelance income surges. If you had no tax liability at all last year, you meet the prior-year safe harbor automatically.

How to Submit Payments

The IRS accepts estimated payments through several channels:¹¹

IRS Direct Pay: free bank-account transfers, no enrollment required, payments schedulable up to a year in advance.
EFTPS (Electronic Federal Tax Payment System): free Treasury Department system that requires one-time enrollment. Useful for recurring payments or business deposits.¹²
Debit or credit card, through third-party processors that charge a convenience fee.
Paper voucher: if you prefer to mail a check or money order, use the vouchers with Form 1040-ES. Make the payment to “United States Treasury” and write “2026 Form 1040-ES” and your Social Security number on the check.⁹

When you file your annual Form 1040, your quarterly payments get credited against your full-year tax liability. Overpay and you can apply the excess to next year or take a refund. Underpay and you owe the balance plus possible penalties.

Penalties for Filing or Paying Late

The IRS charges two separate penalties that can stack. The failure-to-file penalty is 5% of the unpaid tax for each month or partial month your return is late, capped at 25%.¹³ The failure-to-pay penalty is much smaller at 0.5% per month, also capping at 25%. Both run at the same time, and interest accrues on top.

Always file on time, even if you can’t pay in full. Filing late costs you ten times more per month than paying late. If you owe and can’t pay, filing on time and setting up a payment plan cuts the monthly failure-to-pay rate in half, to 0.25%.

For quarterly estimated payments, the underpayment penalty is calculated per quarter using the federal short-term interest rate plus three percentage points, and it runs from the quarterly due date until you pay. The safe harbor rules are the simplest way to avoid it entirely.

Keep Your Records

Hold on to copies of filed returns, schedules, payment confirmations, and the receipts that support your reported income and deductions. The IRS generally has three years from your filing date to audit a return, so that’s the minimum retention period.¹⁴ If you substantially understate your income by 25% or more, the window extends to six years. Keep records of property and equipment purchases for as long as you own the asset plus the retention period after you sell or dispose of it, since depreciation deductions can be questioned years later.

1
Office of the Law Revision Counsel. 26 USC 1402 – Definitions
2
Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes)
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Social Security Administration. Contribution and Benefit Base
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Internal Revenue Service. Topic No. 554, Self-Employment Tax
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Internal Revenue Service. Topic No. 560, Additional Medicare Tax
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Internal Revenue Service. About Schedule C (Form 1040), Profit or Loss From Business (Sole Proprietorship)
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Internal Revenue Service. About Schedule F (Form 1040)
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Internal Revenue Service. About Schedule SE (Form 1040), Self-Employment Tax
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Internal Revenue Service. 2026 Form 1040-ES – Estimated Tax for Individuals
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Internal Revenue Service. Underpayment of Estimated Tax by Individuals Penalty
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Internal Revenue Service. Payments
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Internal Revenue Service. EFTPS: The Electronic Federal Tax Payment System
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Internal Revenue Service. Failure to File Penalty
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Internal Revenue Service. How Long Should I Keep Records