Self-employment tax explained

Self-employment tax is Social Security and Medicare tax for people who work for themselves. The rate is 15.3% of net earnings, and it is owed on top of income tax. This guide shows where the rate comes from, how Schedule SE figures the amount, and why the deduction for one half makes the real cost lower than 15.3%.

What self-employment tax is

On a W-2 job, Social Security and Medicare tax is split. The employee pays 7.65% out of each paycheck and the employer pays a matching 7.65%. A self-employed person is both employee and employer, so they pay the whole 15.3%. Of that, 12.4% is Social Security and 2.9% is Medicare.

It is separate from income tax. Income tax applies to taxable income after the standard deduction. Self-employment tax applies to business profit before it, so a filer who owes no income tax can still owe self-employment tax. It starts at $400 of net earnings, which is about $433 of profit after the 92.35% step below. Under that, there is none and no Schedule SE to file.

How to calculate self-employment tax

Start with net profit from Schedule C, which is business income minus business expenses. Schedule SE then takes three steps.

• Multiply net profit by 92.35%. The result is net earnings from self-employment. Both rates apply to this figure, not to raw profit.
• Apply 12.4% to net earnings up to the Social Security wage base, which is $184,500 for 2026 and was $176,100 for 2025. Net earnings above the base owe no Social Security tax.
• Apply 2.9% to all net earnings. Medicare has no ceiling.

The 92.35% step mirrors the W-2 side. An employer deducts its 7.65% share of payroll tax as a business expense, so that share is never taxed as wages. Taking the same 7.65% off profit before applying the rates puts a self-employed filer on equal footing.

A fourth piece lives on a different form. The 0.9% Additional Medicare Tax applies once wages and net earnings from self-employment, added together, pass $200,000 for a single filer or $250,000 for a married couple filing jointly. Form 8959 figures it, not Schedule SE, and the two thresholds are fixed in statute rather than indexed for inflation.

Two worked examples

At $80,000 of net profit, net earnings are $80,000 × 92.35% = $73,880. All of it is under the wage base, so Social Security is $73,880 × 12.4% = $9,161.12. Medicare is $73,880 × 2.9% = $2,142.52. Self-employment tax is $11,303.64, which is 14.1% of profit rather than 15.3%, because of the 92.35% step.

At $200,000 of net profit, net earnings are $184,700. That is $200 over the 2026 wage base, so Social Security stops at $184,500 × 12.4% = $22,878. Medicare applies to the full $184,700 at 2.9%, which is $5,356.30. The total is $28,234.30. Above the base the marginal rate falls from 15.3% to 2.9%, so the next $100,000 of profit, from $200,000 to $300,000, adds only $2,678.15. The Additional Medicare Tax has not started for a single filer with no wages. It needs net earnings over $200,000, which takes about $216,600 of profit.

Half of it comes back as a deduction

Schedule SE computes one half of the tax and that amount goes on Schedule 1 as an adjustment to income, so it reduces adjusted gross income whether you itemize or take the standard deduction. It lowers income tax only. It does not change net earnings or the self-employment tax itself.

In the $80,000 example the deduction is $5,651.82. For a filer in the 22% bracket that saves about $1,243 of income tax, so the real cost of the $11,303.64 is closer to $10,060, or about 12.6% of profit.

If you also have a W-2 job

One wage base covers W-2 wages and self-employment earnings together, and wages fill it first. Schedule SE subtracts your Social Security wages from the base and applies 12.4% only to the room left over. Someone with a $190,000 salary has used the entire 2026 base, so the Social Security part of self-employment tax on side income is zero and only the 2.9% Medicare part applies. A $20,000 side business then owes $535.63 of self-employment tax instead of $2,825.91.

The Additional Medicare Tax runs the other way. Form 8959 adds wages and net earnings together before testing the threshold, so a high salary makes the 0.9% more likely, not less. In the same example a single filer has $190,000 of wages plus $18,470 of net earnings, which is $8,470 over $200,000. That adds $76.23, and the employer withheld none of it because withholding for this tax only starts on wages above $200,000.

Why it matters for quarterly payments

Nobody withholds self-employment tax. The quarterly payments you send with Form 1040-ES cover income tax and self-employment tax together, and the IRS charges an underpayment penalty on whatever is short at each due date.

That is why a 1099 earner sets aside far more than their income tax bracket. A filer in the 12% bracket owes 12% income tax plus about 14% self-employment tax on the same dollars. See how much to set aside and quarterly taxes for the self-employed. The free 1099 tax calculator computes the self-employment tax and the quarterly payment from one profit figure.

Schedule SE in one paragraph

Schedule SE is filed with Form 1040. The tax it computes carries to Schedule 2 and into total tax, and the one-half deduction it computes carries to Schedule 1. Since the 2020 revision there is one schedule. The old Section A short form and Section B long form are gone. Part I figures the tax and takes farm profit, Schedule C profit, partnership income, and church employee income on its own lines. Part II holds the farm and nonfarm optional methods, which let a filer with a small or negative year report net earnings anyway to keep Social Security credits.

Sources: IRS self-employment tax · Topic 554, self-employment tax · About Schedule SE (Form 1040)