An employee splits payroll taxes with an employer: 7.65% from the pay packet, 7.65% from the employer. A self-employed person is both, so the self-employment tax collects the full 15.3% — 12.4% for Social Security and 2.9% for Medicare — on net earnings from self-employment. It is separate from income tax, filed on Schedule SE, and paid in quarterly instalments because nobody withholds it. This guide explains the rate, the wage-base cap, the 92.35% adjustment that means the effective rate is lower than the headline, the deductions that soften the bill, and the quarterly system that turns an annual liability into four manageable payments.

How the tax is calculated, step by step

Start with net earnings: business income minus business expenses, as reported on Schedule C (or Schedule F for farming). If you have a partnership, your share of partnership income counts as well. From net earnings, the calculation takes three steps. First, multiply by 92.35% — the law removes 7.65%, the employer-equivalent share, before taxing. Second, apply 12.4% Social Security tax to the result up to the wage base ($184,500 for 2026), and 2.9% Medicare tax to the whole result. Third, add the additional 0.9% Medicare tax on the amount by which the 92.35% figure exceeds the threshold ($200,000 single, $250,000 married filing jointly), if it does.

Worked example at $100,000 of profit: the taxable base is $100,000 × 92.35% = $92,350. Social Security tax is $92,350 × 12.4% = $11,451.40. Medicare tax is $92,350 × 2.9% = $2,678.15. Total SE tax is $14,129.55, which the calculator rounds to $14,130. The effective rate on the $100,000 of profit is 14.13%, not 15.3% — the difference is the 92.35% adjustment doing its job.

Worked example near the cap, at $180,000 of profit: the base is $180,000 × 92.35% = $166,230, still below the $184,500 wage base, so the full base bears both parts: Social Security $20,612.52, Medicare $4,820.67, total $25,433.19. At $250,000 of profit the picture changes: the base is $230,875, Social Security applies only to the first $184,500 ($22,878.00), Medicare applies to all $230,875 ($6,695.38), and the additional 0.9% Medicare tax applies to the portion above the single-filer threshold. The cap is the reason high earners’ effective SE tax rates fall as income rises — the 12.4% component simply stops.

Who pays, and who does not

You owe SE tax if your net earnings from self-employment are $400 or more in the year. That covers sole proprietors, independent contractors, freelancers, gig workers, and partners in a partnership. It does not cover employees, whose payroll taxes are withheld; corporations, whose owner-employees are paid wages subject to payroll tax rather than SE tax (with S corporation distributions a separate, much-discussed topic); or rental income from real estate that is not a trade or business, which is generally not subject to SE tax. Church employees have special rules, and certain groups — including some religious objectors and some nonresident aliens — may be exempt or subject to totalisation agreements instead.

The S corporation comparison is worth understanding because it drives many entity-choice decisions. An S corporation owner pays payroll tax only on the salary the corporation pays, not on distributions — but the salary must be reasonable for the work, the corporation files its own return, and payroll administration costs money. For a freelancer earning $60,000, the savings rarely cover the costs and complexity; for one earning $250,000, they can be substantial. This is a decision for a tax adviser with your full numbers, not a rule of thumb, and the IRS does challenge unreasonably low salaries.

What reduces the bill: deductions and credits

Half of the SE tax you pay is deductible as an adjustment to income — it reduces the income on which income tax is computed, though not the SE tax itself. On the $100,000 example above, the $14,130 of SE tax yields a $7,065 deduction, worth $1,552 of income-tax saving at a 22% marginal rate. The deduction is claimed on Schedule 1 of Form 1040, and it is available whether or not you itemise.

Business expenses reduce SE tax directly, because they reduce net earnings: every $1,000 of legitimate business expense saves $141.30 of SE tax (at the full 15.3% on the 92.35% base) plus income tax at your marginal rate. Retirement contributions are the largest lever for most self-employed people, but their mechanics differ: contributions to a SEP IRA or a Solo 401(k) reduce income tax, and the employee deferral in a Solo 401(k) does not reduce SE tax, because it is made from earnings that have already been counted. The qualified business income deduction, worth up to 20% of qualified business income for eligible taxpayers, reduces income tax only — it never reduces SE tax. Keeping the two taxes separate in your head prevents the most common planning error in this area.

Health insurance premiums for a self-employed person are deductible as an adjustment to income (subject to the profit limitation), and the premiums are not subject to SE tax when structured correctly. The home-office deduction, vehicle expenses, and the cost of a business phone and internet all reduce net earnings the same way. The discipline is documentation: an expense without a record is an expense the IRS can disallow, and a disallowed expense restores both the income tax and the SE tax on it.

Quarterly payments and the underpayment penalty

Estimated tax is paid in four instalments: April 15, June 15, September 15, and January 15 (of the following year), covering income tax and SE tax together. The instalments are not equal quarters of the calendar — the June payment covers two months, the September payment three — because the schedule is set by statute, not by symmetry. Each instalment should be roughly a quarter of the year’s expected total, adjusted as the year develops.

The underpayment penalty is computed quarter by quarter, at an interest-like rate set by the IRS, on the shortfall for each period. The safe harbours remove the guesswork: pay in four equal instalments totalling at least 90% of the current year’s tax, or at least 100% of the prior year’s tax (110% if prior-year adjusted gross income was over $150,000), and no penalty applies even if the final return shows a larger balance. New businesses with no prior year use the 90% rule. If income is strongly seasonal, the annualised income instalment method (Schedule AI of Form 2210) matches payments to the quarters in which income was earned, avoiding penalty on a big fourth quarter — at the cost of a longer form.

Paying online through IRS Direct Pay or EFTPS, and keeping the confirmation for each payment, is the practical minimum. State estimated taxes run on parallel schedules with their own forms and safe harbours; this guide covers the federal tax only, and your state may require quarterly payments even when the federal safe harbour is met.

Common mistakes, and how to avoid them

The most expensive mistake is forgetting the tax exists until April. A first-year freelancer who earns $80,000 and spends it all faces a combined federal bill — income tax plus about $11,304 of SE tax — with nothing set aside. The fix is mechanical: move a fixed percentage of every payment received (25% to 30% is a common starting point, covering both taxes for most incomes) into a separate account the day it arrives, and pay quarterly from that account. The percentage is a habit, not a calculation; refine it when the first return is done.

The second mistake is treating gross receipts as profit. SE tax applies to net earnings after business expenses, so every legitimate expense — software, mileage at the standard rate, a share of home costs, professional development — reduces the tax. The third is mixing personal and business money until the records are unrecoverable. A separate business account, used for all business income and expenses, makes Schedule C preparation a matter of hours rather than weeks, and makes an audit survivable. None of these mistakes is sophisticated. All of them are common.

Frequently asked questions

What is the self-employment tax rate for 2026?

15.3% in total: 12.4% for Social Security on earnings up to the $184,500 wage base, plus 2.9% for Medicare on all earnings. The tax applies to 92.35% of net profit, so the effective rate on profit is about 14.1% before the cap. An additional 0.9% Medicare tax applies above $200,000 (single) or $250,000 (joint).

How is self-employment tax calculated?

Take net profit from Schedule C, multiply by 92.35%, apply 12.4% Social Security tax up to the wage base and 2.9% Medicare tax to the whole amount, and add the additional Medicare tax if applicable. Example: $100,000 of profit gives a $92,350 base and $14,130 of SE tax.

When are quarterly estimated tax payments due?

April 15, June 15, September 15, and January 15 of the following year. The payments cover income tax and self-employment tax together, filed with Form 1040-ES. The safe harbour — 100% of last year’s tax (110% at higher incomes) or 90% of this year’s — avoids the underpayment penalty.

Can I deduct half of my self-employment tax?

Yes, as an adjustment to income on Schedule 1 of Form 1040. Half the SE tax paid reduces the income on which income tax is figured, but it does not reduce the SE tax itself. You do not need to itemise to claim it.

Does the qualified business income deduction reduce self-employment tax?

No. The QBI deduction reduces income tax only. Net earnings remain fully subject to SE tax. The same applies to the standard deduction — it reduces income tax, not SE tax.

Do I owe SE tax on $400 of earnings?

Yes, if net earnings from self-employment reach $400 in the year, SE tax applies and Schedule SE must be filed. Below $400, no SE tax is due, though income tax may still apply depending on total income.