Self-Employment Tax Explained: SE Tax, Deductions, and 2026 Rates

What Self-Employment Tax Is

Employees pay 7.65% of their wages in FICA taxes — 6.2% for Social Security and 1.45% for Medicare — and their employer pays a matching 7.65%. The total FICA contribution to fund these programs is 15.3% of wages, split evenly between worker and employer.

Self-employed individuals — freelancers, independent contractors, sole proprietors, and members of partnerships — have no employer. They pay both halves themselves. The combined 15.3% rate is called the self-employment (SE) tax, and it applies to net self-employment income subject to the SE base calculation.

SE tax is separate from and in addition to federal income tax. A self-employed person at a 22% marginal income tax rate pays SE tax on top of that. Understanding the SE tax calculation is the first step in estimating total federal tax liability as a self-employed person — and in planning quarterly estimated tax payments to avoid underpayment penalties.

The SE Tax Formula

The formula has three steps, each addressing a specific part of the law.

Step 1: Compute the subject amount (IRC § 1402).

You do not pay SE tax on 100% of your net self-employment income. The calculation reduces net SE income by 7.65% (the employer-equivalent portion) before applying the 15.3% rate. This mirrors how W-2 employees are treated: they pay the employee FICA rate on their wages, but their wages themselves are not reduced — the employer just pays the other half separately.

SE subject amount = Net SE income × 0.9235

The factor 0.9235 = 1 − 0.0765. For net SE income of $50,000:

$50,000 × 0.9235 = $46,175

Step 2: Apply the Social Security and Medicare rates.

The 15.3% SE tax has two components with different rules:

• Social Security component (12.4%): Applied to the SE subject amount, up to the annual Social Security wage base. For 2026, the wage base is $184,500. Earnings above this threshold are not subject to the Social Security portion.
• Medicare component (2.9%): Applied to the full SE subject amount with no wage base ceiling.

For $46,175 of subject amount:

Social Security SE tax: $46,175 × 12.4% = $5,725.70
Medicare SE tax:        $46,175 × 2.9%  = $1,339.08
Total SE tax:           $5,725.70 + $1,339.08 = $7,064.78

Step 3: The above-the-line deduction (IRC § 164(f)).

Once SE tax is computed, you may deduct 50% of the total SE tax from gross income on Schedule 1 of Form 1040. This deduction is taken regardless of whether you itemize deductions.

Above-the-line deduction = Total SE tax × 50%
Deduction = $7,064.78 × 0.50 = $3,532.39

This deduction compensates for the asymmetry: W-2 employees also pay only 7.65%, with the employer paying the other 7.65% — and that employer payment is never included in the employee’s income. The deduction brings the effective treatment closer (though not identical) to parity.

The net effect: on $50,000 of net SE income, the effective SE tax burden is approximately $7,064.78, and the deduction reduces taxable income by $3,532.39 — saving income tax at the marginal rate on that amount, but not eliminating the SE tax itself.

Additional Medicare Tax (0.9%)

The Affordable Care Act added an Additional Medicare Tax of 0.9% on high earners. For self-employed individuals, this applies to net SE income subject to Medicare above these thresholds:

• $200,000 for single filers, heads of household, and married filing separately
• $250,000 for married filing jointly

The Additional Medicare Tax applies to the SE subject amount (the 0.9235-adjusted figure) in excess of the threshold, not the full net SE income. It is computed separately on Form 8959. There is no above-the-line deduction for the Additional Medicare Tax.

For most self-employed workers at $50,000–$100,000 of net SE income, the Additional Medicare Tax does not apply. It becomes relevant for sole proprietors with higher earnings or in later high-income years.

Effective SE Tax Rate

Because the SE subject amount is 92.35% of net income (not 100%), and because the deduction reduces income tax, the effective SE tax burden as a percentage of net SE income is approximately 14.13% for incomes below the Social Security wage base:

Effective SE tax rate = Total SE tax ÷ Net SE income
$7,064.78 ÷ $50,000 = 14.13%

This is the actual fraction of net SE income going to SE tax. The 15.3% stated rate applies to the subject amount ($46,175), not the full income — hence the ~14% effective rate when measured against the full $50,000. At incomes above the Social Security wage base, the effective rate falls further because the 12.4% Social Security component is capped.

How SE Tax Differs From W-2 Employment

The 92.35% base and the 50% deduction together create a rough equivalence for the Social Security and Medicare contributions between employed and self-employed workers, though not an exact one. W-2 employees also benefit from employer FICA contributions that fund their Social Security benefits using the same wage base — SE workers fund the same programs through SE tax.

The Self-Employment Tax Calculator

The calculator computes SE tax from two inputs:

Net self-employment income — this is revenue minus allowable business deductions (business expenses, home office if applicable, health insurance premium deduction if applicable, etc.). This is not gross revenue. If you are not sure of your net SE income, use the most recent year’s Schedule C net profit as a reference point for annual projection.

Filing status — used to determine whether the Additional Medicare Tax threshold is $200,000 (single/head of household/married filing separately) or $250,000 (married filing jointly).

The calculator returns:

• The SE subject amount (net income × 92.35%)
• Social Security and Medicare components separately
• Whether Additional Medicare Tax applies
• Total SE tax
• Above-the-line deduction (50% of SE tax)
• Effective SE tax rate (total SE tax ÷ net SE income)

Planning Ahead: Quarterly Estimated Taxes

Self-employed individuals generally do not have taxes withheld from payments received. Instead, the IRS expects quarterly estimated tax payments covering both SE tax and income tax. Estimated payments are due:

• Q1: April 15
• Q2: June 15
• Q3: September 15
• Q4: January 15 of the following year

Underpayment penalties apply if total withholding plus estimated payments fall below a safe harbor threshold (generally 90% of the current year’s tax or 100% of the prior year’s tax, with the higher threshold of 110% for high earners).

The SE tax calculator can help estimate the SE tax component of quarterly payments. For a full quarterly estimate, add projected income tax (based on the marginal rate on net SE income after the above-the-line deduction) to the SE tax figure.

Tax-Adjacent Cluster: Related Calculators

Self-employment tax fits into a broader set of income and tax tools:

• Take-Home Paycheck Calculator — Covers W-2 withholding: federal income tax, employee FICA, and state income tax for comparison to self-employed net pay.
• Tax Bracket Calculator — Shows which federal income tax brackets apply to taxable income after deductions, including the above-the-line SE tax deduction.
• Capital Gains Tax Calculator — Relevant for self-employed business owners who sell business assets or investments.
• Salary-to-Hourly Calculator — Converts an annual self-employment earnings target to an equivalent hourly rate for billing.
• Net Pay Raise Calculator — Computes the after-tax value of additional earnings, useful when estimating the true value of additional self-employed income.

Frequently Asked Questions

Does self-employment tax apply to all business income? SE tax applies to net earnings from self-employment — which includes sole proprietor net profit, a general partner’s share of net partnership income, and similar active trade or business income. Passive income, investment income (dividends, capital gains), and rental income (unless real estate is a trade or business) are generally not subject to SE tax. S-corporation shareholders pay SE tax only on wages they receive from the corporation, not on pass-through distributions — this distinction is a significant tax planning consideration, though S-corp structure has its own costs and compliance requirements.

What is “net” self-employment income? Net SE income is gross business revenue minus ordinary and necessary business expenses deductible under IRC § 162. Common deductions include: materials and supplies, business-use portion of a home office, business vehicle expenses, business software and subscriptions, professional services (accounting, legal), and self-employed health insurance premiums. A self-employed person with $80,000 in revenue and $20,000 in business expenses has $60,000 of net SE income — SE tax applies to the $60,000.

Can I avoid SE tax by forming an LLC? A single-member LLC taxed as a sole proprietor (the default) changes nothing — SE tax still applies to net earnings. An LLC taxed as an S-corporation can reduce SE tax by splitting earnings between a W-2 salary (subject to FICA on wages) and S-corp distributions (not subject to SE tax), but the IRS requires the salary to be “reasonable compensation” for the services rendered. This strategy has administrative costs (payroll, S-corp tax filing) that only make sense at higher income levels. Consult a tax professional before structuring around SE tax.

Is the above-the-line SE tax deduction the same as a business deduction? No. The above-the-line deduction (50% of SE tax) is taken on Schedule 1 of Form 1040, not on Schedule C. It reduces adjusted gross income, not SE income. The distinction matters: it does not reduce the SE tax base for the current year (you can’t reduce SE tax by deducting SE tax — that would be circular). It reduces income tax only.

Do estimated tax payments affect the SE tax calculation? No. Estimated tax payments are how you pay the tax — they don’t change what the tax is. The SE tax is calculated from net SE income regardless of whether estimated payments have been made or missed. Penalties for underpayment are separate from the tax calculation.