How self-employment tax works
When you work for an employer, you pay 7.65% of your wages in Social Security and Medicare tax and your employer pays another 7.65%. When you work for yourself, you pay both halves as self-employment (SE) tax, reported on Schedule SE. It applies once your net earnings from self-employment reach $400 for the year.
Social Security = min(Net earnings, $184,500 − W-2 wages) × 12.4%
Medicare = Net earnings × 2.9%
SE tax = Social Security + Medicare
The 92.35% factor exists because employees don't pay FICA on their employer's half of FICA. Reducing your profit by 7.65% puts you on the same footing.
Example
A freelancer with $60,000 of net profit has net earnings of $55,410. SE tax is $55,410 × 15.3% = $8,477.73. Half of that, $4,238.87, is deducted on Form 1040 when working out income tax.
Things that change the result
- The Social Security wage base. The 12.4% portion stops at $184,500 of combined wages and net earnings for 2026. W-2 wages count first, so a well-paid employee with a side business may owe only the 2.9% Medicare portion on side income.
- Additional Medicare Tax. Above $200,000 of earnings ($250,000 married filing jointly), an extra 0.9% applies. It isn't part of SE tax and isn't deductible.
- Business expenses. SE tax is calculated on profit after expenses, so every legitimate deduction lowers it.
Frequently asked questions
Is self-employment tax the same as income tax?
No. SE tax funds Social Security and Medicare and is owed in addition to federal income tax. A sole proprietor usually pays both through quarterly estimated payments.
Do I pay SE tax on an S corporation?
Not on S corp profit distributions. Owner-employees are paid a W-2 salary that has regular payroll FICA, which is why some owners elect S corp status once profits are high enough.
What if my profit is under $400?
No SE tax is due if net earnings from self-employment are below $400 for the year.