What Is Self-Employment Tax?

Self-employment tax is the Social Security and Medicare tax that self-employed people pay on their own earnings. The rate is 15.3%: 12.4% for Social Security and 2.9% for Medicare, applied to 92.35% of net self-employment earnings. For 2026 the Social Security part stops at $184,500 of earnings. It applies once net earnings reach $400.

How self-employment tax works

When you work for wages, you and your employer each pay half of Social Security and Medicare: 7.65% each. When you work for yourself, you are both sides, so you pay the full 15.3%. That's self-employment tax, often shortened to SE tax. It funds the same Social Security and Medicare benefits, and the earnings it's paid on count toward your future Social Security record.

It's separate from income tax. A contractor with a modest profit and lots of deductions can owe little or no income tax and still owe thousands in SE tax, because SE tax is figured on net earnings before the standard deduction, the QBI deduction or most other personal deductions.

How to calculate self-employment tax

SE tax = (min(N, $184,500 − W) × 12.4%) + (N × 2.9%), where N = net profit × 92.35%

Why 92.35%? It mirrors the employee side. An employer's half of the tax isn't counted as the worker's wages, so the IRS lets you reduce your net profit by 7.65% (100% − 7.65% = 92.35%) before applying the rate.

Try your own numbers with the self-employment tax calculator, then fold the result into your quarterly estimated taxes.

Who has to pay self-employment tax?

Per IRS Topic 554, you generally owe SE tax if your net earnings from self-employment are $400 or more. That covers sole proprietors and single-member LLC owners filing Schedule C, and partners in a business taxed as a partnership, which includes many multi-member LLCs (how much of an LLC member's share is subject to SE tax can depend on their role, so ask your CPA). Your 1099-NEC income from general contractors or property managers counts, and so does cash and card income nobody reports on a form.

S corporation owners are the main exception. Profit that passes through an S corp isn't subject to SE tax, but the owner must pay themselves a reasonable W-2 salary, and that salary carries regular payroll taxes. See reasonable salary for S corp owners and S corp vs. LLC for contractors.

Self-employment tax vs. income tax

The half-SE-tax deduction

You can deduct half of your SE tax as an adjustment to income on Schedule 1. In the $90,000 example above, that's $6,358.30 off adjusted gross income. It lowers income tax only. It does not reduce the SE tax itself, and it isn't a business expense on Schedule C.

SE tax by trade: where it bites

Ways contractors legally lower self-employment tax

• Claim every legitimate business expense. SE tax is figured on net profit, so a deduction like mileage, tools or a home office cuts SE tax and income tax.
• Time equipment purchases. Section 179 and bonus depreciation reduce Schedule C profit, which lowers SE tax too.
• Consider an S corporation, carefully. It can lower total payroll and SE taxes for some profitable owners, but the reasonable-salary rules, payroll costs and state fees mean it isn't automatically a win. A CPA should run the numbers.
• Don't misclassify workers. Paying employees as 1099 subs to dodge payroll tax creates back taxes and penalties.

Common mistakes

• Forgetting SE tax when setting money aside, then facing a bill twice the size expected.
• Applying 15.3% to full profit instead of 92.35% of it, which overstates the tax slightly.
• Ignoring W-2 wages from a second job, which reduce the room left under the $184,500 cap.
• Deducting the half-SE amount on Schedule C. It belongs on Schedule 1.

See the contractor taxes guide for the full picture, or how BRIX bookkeeping and tax help works.