Self-employment tax explained

Updated October 2026 · 2026 tax year · 7 minute read

Self-employment tax is the Social Security and Medicare tax you pay on your own business profit. It is separate from income tax, it usually surprises first-time freelancers, and it is the reason a side income cannot be treated like a raise.

What self-employment tax is

Employees and employers split Social Security and Medicare tax (often called FICA). Each pays 7.65%. If you are self-employed, you are both employee and employer, so you pay the combined 15.3%. According to the IRS, that rate is made up of 12.4% for Social Security and 2.9% for Medicare.

You generally owe it if you have net earnings from self-employment of $400 or more for the year. The tax is figured on Schedule SE and reported on your Form 1040 along with your income tax.

The 92.35% factor

The 15.3% is not applied to your full profit. It is applied to 92.35% of net profit. The figure comes from subtracting the employer half of the payroll tax (7.65%) from 100%, which roughly mirrors the way an employer's half of payroll tax is not counted as employee income. The result is an effective rate of about 14.1% of profit.

Example: $10,000 of profit

• Net earnings subject to the tax: $10,000 × 92.35% = $9,235
• Self-employment tax: $9,235 × 15.3% = $1,413
• Half of that, $706, is deductible when you figure income tax

The Social Security cap and your day job

The 12.4% Social Security portion stops once your earnings reach a yearly limit called the wage base. For 2026 it is $184,500, up from $176,100 in 2025. The 2.9% Medicare portion has no cap.

The cap is shared between your wages and your self-employment earnings. Wages from your regular job use up part of it first, which leaves less room for Social Security tax on your side profit. A high salary can therefore reduce your self-employment tax, as this comparison shows for $30,000 of side profit:

In the second row only $14,500 of side earnings ($184,500 minus $170,000) is still under the Social Security cap, so only that slice owes the 12.4%. The rest owes Medicare tax alone.

Additional Medicare Tax

A further 0.9% Medicare tax applies to combined wages and self-employment earnings above $200,000 for single or head-of-household filers, or $250,000 for married couples filing jointly. This is a separate tax with its own threshold, and it only matters for higher earners. The calculator on this site includes it.

The deduction that softens the blow

You can deduct one-half of your self-employment tax when figuring your adjusted gross income. The deduction is claimed on Schedule 1 and lowers your income tax, not your self-employment tax. In the $10,000 example above, it removes $706 from the income that is subject to income tax.

Does self-employment tax buy you anything?

Yes. The Social Security Administration uses the earnings reported on Schedule SE to determine your future Social Security benefits and Medicare eligibility. Paying the tax adds to your earnings record, which is a useful reminder that it is not simply a penalty for working for yourself.

Ways to reduce it legitimately

• Track every deductible expense. Lower profit means lower self-employment tax as well as lower income tax.
• Keep business and personal spending separate. A dedicated account and card make records simple and defensible.
• Revisit your structure when profit grows. At higher profit levels, some business owners look at entity structures such as an S corporation, which can change how the profit is taxed. That is a decision to make with a CPA, because it adds cost, payroll rules and trade-offs.

Common questions

Do I pay self-employment tax on my regular job's wages?

No. Your employer withholds and matches Social Security and Medicare tax on wages. Self-employment tax applies only to your self-employment profit.

What if my side business loses money?

If your net earnings are under $400, or negative, you generally owe no self-employment tax. A loss may offset other income depending on the facts, which is a good question for a tax professional.

Is it already included if I use payroll withholding?

No. Withholding from a paycheck covers payroll tax on that paycheck. Nothing covers your side profit unless you make estimated payments or adjust your withholding, as explained in the quarterly estimated taxes guide.

Run the numbers with the free calculator

This guide is general information, not tax advice. Tax rules change and individual circumstances differ.