What Is the Tax Rate for Sole Proprietorship?

The tax rate for a sole proprietorship is the ordinary individual income tax rate, which runs from 10% to 37% for 2026, plus a 15.3% self-employment tax that funds Social Security and Medicare. A sole proprietorship is not a separate taxable entity, so business profit lands on your personal return and is taxed there rather than at a special business rate. What you actually owe depends on your total income from every source, the deductions you claim, and whether your state levies its own income tax.

Federal Income Tax Brackets for 2026

Your net business profit is added to any other income you earn, and the total is taxed using the same seven brackets that apply to every individual filer:

10%: up to $12,400 (single) / $24,800 (married filing jointly)
12%: $12,401–$50,400 (single) / $24,801–$100,800 (joint)
22%: $50,401–$105,700 (single) / $100,801–$211,400 (joint)
24%: $105,701–$201,775 (single) / $211,401–$403,550 (joint)
32%: $201,776–$256,225 (single) / $403,551–$512,450 (joint)
35%: $256,226–$640,600 (single) / $512,451–$768,700 (joint)
37%: over $640,600 (single) / over $768,700 (joint)

The IRS published these figures in Revenue Procedure 2025-32, reflecting changes from the One, Big, Beautiful Bill signed into law in 2025.¹

The brackets are marginal. Each rate applies only to the income falling inside its range, not to your whole income. A single filer with $60,000 in taxable income pays 10% on the first $12,400, 12% on the portion up to $50,400, and 22% only on the remainder above $50,400. The effective rate on that return sits well below 22%.²

Self-Employment Tax

Income tax is only half of the picture. Sole proprietors also owe self-employment tax, which funds Social Security and Medicare. In a regular job, the employer pays half of these contributions and the employee pays half. When you work for yourself, you cover both halves. The combined rate is 15.3%, made up of 12.4% for Social Security and 2.9% for Medicare.³

The 15.3% does not apply to your full net profit. The IRS first multiplies your net earnings by 92.35%, then applies the tax rate. That adjustment mirrors the fact that employees do not pay Social Security and Medicare taxes on the employer’s share of those contributions.⁴

The Social Security Wage Base

The 12.4% Social Security portion only applies to earnings up to an annual cap. For 2026, that cap is $184,500.⁵ Once your combined wages and self-employment income cross that line, the 12.4% stops. The 2.9% Medicare piece has no cap and applies to every dollar of net earnings.

Additional Medicare Tax for High Earners

Higher-income sole proprietors owe an extra 0.9% Medicare tax on self-employment income above these thresholds:

$200,000 for single filers and heads of household
$250,000 for married couples filing jointly
$125,000 for married individuals filing separately

If you also draw wages from another job, those wages reduce the threshold before the additional tax is applied to your self-employment income.⁶

Deducting Half of the Self-Employment Tax

You can deduct half of your self-employment tax when calculating adjusted gross income. That deduction lowers the income you pay income tax on. It does not reduce the self-employment tax itself.³

The Qualified Business Income Deduction

The Qualified Business Income (QBI) deduction lets many sole proprietors subtract up to 23% of qualified business income before income tax is calculated. The Tax Cuts and Jobs Act originally set the deduction at 20%. The One, Big, Beautiful Bill made it permanent and raised it to 23% for tax years beginning in 2026.¹

If your taxable income falls below roughly $203,000 (single) or $406,000 (married filing jointly) for 2026, you generally qualify for the full deduction. Above those thresholds, the deduction phases out, particularly for owners of specified service businesses in fields such as law, accounting, consulting, medicine, and financial services. The phase-out range extends about $75,000 for single filers and $150,000 for joint filers before the deduction disappears entirely for those service businesses.

At least 75% of your business’s gross receipts must come from a qualified trade or business to claim the deduction. QBI reduces taxable income for income tax purposes only. It does not reduce self-employment tax.

State and Local Taxes

Federal isn’t the whole picture. Your business profit may also be taxed by your state. Among states with an income tax, top rates range from about 2.5% to over 13%. Eight states impose no individual income tax. Some use a flat rate; others mirror the federal progressive structure.

Cities and counties can add a further layer. Certain municipalities charge an unincorporated business tax or a local income assessment. Others require a business license or operating permit with annual fees that vary by location and industry. Confirm both state and local obligations with the relevant agencies before you budget for taxes.

When the Rate Actually Applies

You must file a federal return and pay self-employment tax if your net earnings from self-employment reach $400 or more for the year.³ That threshold sits far below the standard deduction, so many sole proprietors owe no income tax yet still owe self-employment tax and must file.

For 2026, the standard deduction is $16,100 for single filers, $32,200 for married couples filing jointly, and $24,150 for heads of household.¹ Total income below the standard deduction means no income tax owed, though the $400 rule for self-employment tax still stands on its own.

Paying the Tax Through the Year

No employer withholds tax from your business income, so the IRS expects payment in installments using Form 1040-ES.⁷ The four deadlines for 2026 are:⁸

1st payment: April 15, 2026
2nd payment: June 15, 2026
3rd payment: September 15, 2026
4th payment: January 15, 2027

You can skip the January payment if you file your 2026 return and pay the full balance by February 1, 2027.

To avoid an underpayment penalty, your total estimated payments must equal at least the smaller of 90% of your 2026 tax or 100% of the tax shown on your 2025 return, assuming that return covered a full 12 months. If your 2025 adjusted gross income exceeded $150,000 ($75,000 if married filing separately), the prior-year figure rises to 110%.⁸ Overpayments come back as a refund or roll into next year’s first quarter. Shortfalls are due with your April return.

1
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026, Including Amendments From the One, Big, Beautiful Bill
2
Internal Revenue Service. Federal Income Tax Rates and Brackets
3
Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes)
4
Internal Revenue Service. Topic No. 554, Self-Employment Tax
5
Social Security. 2026 Cost-of-Living Adjustment (COLA) Fact Sheet
6
Internal Revenue Service. Topic No. 560, Additional Medicare Tax
7
Internal Revenue Service. About Form 1040-ES, Estimated Tax for Individuals
8
Internal Revenue Service. Form 1040-ES – 2026 – Estimated Tax for Individuals