How self-employment tax works
Employees pay 7.65% of their wages toward Social Security and Medicare, and their employer pays another 7.65%. When you are self-employed you are both the employee and the employer, so you pay the full 15.3%: 12.4% for Social Security and 2.9% for Medicare. It is reported on Schedule SE and paid together with your income tax, usually through quarterly estimated payments.
The formula
- Start with net profit from your business (Schedule C line 31).
- Multiply by 92.35% to get net earnings from self-employment. (This adjustment mirrors the employer's share that employees don't pay tax on.)
- Apply 12.4% Social Security to net earnings up to the annual wage base ($184,500 for 2026; $176,100 for 2025), minus any W-2 wages that already used up part of that base.
- Apply 2.9% Medicare to all net earnings, with no cap. An extra 0.9% applies above $200,000 (single) or $250,000 (married filing jointly).
- Add them up. Half of the total is deductible from your income on Form 1040, which lowers your income tax.
Worked example
A freelance developer has $65,000 of net profit in 2026 and no W-2 wages.
- Net earnings: $65,000 × 0.9235 = $60,027.50
- Social Security: $60,027.50 × 12.4% = $7,443.41
- Medicare: $60,027.50 × 2.9% = $1,740.80
- Self-employment tax: $9,184.21 (about 14.1% of profit)
- Deduction on Form 1040: $4,592.11
This is on top of federal and state income tax, which is why freelancers are often advised to set aside 25–30% of profit for taxes in total.
How to lower self-employment tax
Every legitimate business expense reduces net profit and therefore SE tax, so track them all: software, equipment, home office, health insurance, retirement contributions (SEP-IRA, Solo 401(k)) and mileage. Once profit is consistently above roughly $80,000–$100,000, many freelancers elect S-corporation status so that only a "reasonable salary" is subject to payroll taxes. Talk to a CPA before making that change.
Make sure your pricing accounts for this tax. The hourly rate calculator helps you set a rate high enough that your take-home income still meets your goal after SE tax.
Frequently asked questions
Do I have to pay self-employment tax if I have a full-time job?
Yes, on your side income above $400 of net earnings. Your W-2 wages reduce the amount subject to the 12.4% Social Security portion once you reach the wage base, but Medicare applies to everything. Enter your wages in the calculator.
Is self-employment tax the same as income tax?
No. SE tax funds Social Security and Medicare. Federal and state income tax are calculated separately on top of it. Half of your SE tax is deductible when computing income tax.
When do I pay it?
Through quarterly estimated tax payments (Form 1040-ES) due in April, June, September and January, then reconciled on your annual return. Skipping estimates can trigger underpayment penalties.
Does this calculator include state taxes?
No. It estimates federal self-employment tax only. State income tax, if any, is separate.