What Is Self-Employment Tax and How to Calculate It

Self-employment tax is the Social Security and Medicare tax that freelancers, sole proprietors, and other independent workers pay on their business earnings. The combined rate is 15.3% — 12.4% for Social Security and 2.9% for Medicare — but you apply it to 92.35% of your net profit rather than the full amount, which brings the effective rate closer to 14.1%. For 2026, the Social Security portion stops at $184,500 of covered earnings; Medicare has no cap and adds a 0.9% surcharge above certain income thresholds.1Office of the Law Revision Counsel. 26 USC 1401 – Rate of Tax2Social Security Administration. 2026 Cost-of-Living Adjustment (COLA) Fact Sheet

Why You Pay Both Halves

When you work for someone else, Social Security and Medicare taxes are split down the middle. You pay half through paycheck withholding, and your employer pays the other half. When you work for yourself, there’s no employer on the other side of that ledger, so you pay both shares. The rules are laid out in the Self-Employment Contributions Act, or SECA.3Social Security Administration. What Are FICA and SECA Taxes?

The 12.4% Social Security portion funds retirement, disability, and survivor benefits. The 2.9% Medicare portion funds hospital insurance. Add them and you get 15.3%.1Office of the Law Revision Counsel. 26 USC 1401 – Rate of Tax

Who Owes It

You owe self-employment tax if your net earnings from a trade or business reach $400 or more in a calendar year.4Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes) That’s a low bar. A modest side gig can trigger the obligation. The $400 figure refers to net profit after business expenses, not gross revenue.

p>Age and benefit status don’t get you out of it. Even if you’re already collecting Social Security or enrolled in Medicare, you still owe the tax on qualifying self-employment income.5Internal Revenue Service. Topic No. 554, Self-Employment Tax

If you also earn W-2 wages, only your independent earnings run through the self-employment calculation — your employer is already withholding on the paycheck side. One interaction matters, though: your wages count toward the $184,500 Social Security wage cap first. If your W-2 earnings are already near that ceiling, the 12.4% Social Security portion of your self-employment tax shrinks or disappears.

How to Calculate Self-Employment Tax

Most sole proprietors and single-member LLCs start on Schedule C of Form 1040. You add up business revenue, subtract allowable expenses (supplies, vehicle costs, insurance, professional fees, rent, home office, and so on), and land on a net profit figure. That number is the starting point for Schedule SE, where the self-employment tax itself gets calculated.6Internal Revenue Service. About Schedule SE (Form 1040), Self-Employment Tax

The 92.35% Adjustment

Before applying the 15.3% rate, you multiply your net profit by 92.35%.5Internal Revenue Service. Topic No. 554, Self-Employment Tax The logic: a W-2 employee never pays FICA on the portion their employer contributes, because that share isn’t part of the employee’s taxable wages. The 92.35% factor mimics that treatment by shrinking your taxable base by 7.65%, which is half of 15.3%. It puts a self-employed worker on roughly equal footing with a wage earner making the same amount.

A Worked Example

Say your net profit is $80,000. Here’s the math Schedule SE walks you through:

  • Apply the 92.35% factor: $80,000 × 0.9235 = $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

That $11,304 works out to about 14.1% of the original $80,000, noticeably below the headline 15.3% rate.

The 2026 Wage Cap and the Additional Medicare Tax

The 12.4% Social Security tax applies only up to a yearly cap that the government adjusts for inflation. For 2026, the cap is $184,500.2Social Security Administration. 2026 Cost-of-Living Adjustment (COLA) Fact Sheet Earnings above that amount are exempt from the Social Security portion. The 2.9% Medicare tax keeps going with no ceiling.

Higher earners owe an extra 0.9% Medicare surcharge on income above statutory thresholds. Those thresholds are fixed in law and haven’t changed since 2013, so they aren’t adjusted for inflation.1Office of the Law Revision Counsel. 26 USC 1401 – Rate of Tax If you also earn W-2 wages, your wages and self-employment income are combined to test whether you’ve crossed the line.7Internal Revenue Service. Questions and Answers for the Additional Medicare Tax

  • Single or head of household: $200,000
  • Married filing jointly: $250,000
  • Married filing separately: $125,000

The 50% Deduction

After you calculate self-employment tax, you deduct half of it when figuring your adjusted gross income on Form 1040.8Office of the Law Revision Counsel. 26 US Code 164 – Taxes Using the $80,000 example, you’d deduct $5,652. This deduction cuts your income tax, not your self-employment tax — the $11,304 SE bill stays the same, but the income tax you pay on top of it drops because your taxable income falls.

The 0.9% Additional Medicare Tax is not part of the deductible half. Only the base 15.3% counts.8Office of the Law Revision Counsel. 26 US Code 164 – Taxes

Paying Quarterly to Avoid Penalties

Federal tax runs on a pay-as-you-go schedule. Employees have taxes pulled from every paycheck. Self-employed workers send the IRS estimated payments four times a year instead, covering both income tax and self-employment tax.9Internal Revenue Service. Estimated Taxes

For tax year 2026, the deadlines are:10Internal Revenue Service. 2026 Form 1040-ES – Estimated Tax for Individuals

  • April 15, 2026, for income earned January through March
  • June 15, 2026, for income earned April and May
  • September 15, 2026, for income earned June through August
  • January 15, 2027, for income earned September through December

You can skip the January payment if you file your 2026 return and pay any remaining balance by February 1, 2027. Payment options include IRS Direct Pay (a free bank transfer with no account setup), the Electronic Federal Tax Payment System, credit or debit card through the processors listed on IRS.gov, or a paper check mailed with the 1040-ES voucher.11Internal Revenue Service. Direct Pay With Bank Account

Underpayment Penalties and Safe Harbors

Miss or shortchange a quarterly estimate and the IRS charges interest that compounds daily. As of early 2026, the rate is 7% annually.12Internal Revenue Service. Quarterly Interest Rates Interest runs from the missed due date until you pay, so a shortfall in April costs more than the same shortfall in September.

You avoid the penalty entirely if any of these apply:13Internal Revenue Service. Underpayment of Estimated Tax by Individuals Penalty

  • Your total tax after withholding and credits is less than $1,000.
  • Your withholding and estimated payments cover at least 90% of your current-year tax.
  • Your withholding and estimated payments at least match 100% of last year’s total tax.

The last one is what most freelancers rely on, because it doesn’t require guessing this year’s income. Just match last year’s number and you’re safe no matter what happens. One catch: if your prior-year adjusted gross income was over $150,000 ($75,000 if married filing separately), the safe harbor climbs from 100% to 110% of last year’s tax.13Internal Revenue Service. Underpayment of Estimated Tax by Individuals Penalty Freelancers whose income jumps sharply from one year to the next sometimes miss that shift and get penalized despite technically covering last year’s bill.

When you file your annual return, your quarterly payments are credited against your actual liability. Overpayment comes back as a refund; any shortfall is due by the April filing deadline.