How Self-Employment Tax Is Calculated: Step by Step
Schedule SE from net profit to tax — the 92.35 percent factor, the wage base, the Medicare tax above it, and the half you deduct
Reviewed by the Fairlight Accounting cross-border tax team — U.S. & Canadian Tax Desks
Self-employment tax is calculated on Schedule SE in four steps: combine net profit from all self-employment, multiply by 92.35 percent to get net earnings, apply 12.4 percent Social Security tax up to the annual wage base (less W-2 wages already taxed), and apply 2.9 percent Medicare tax to all net earnings. Half the result is deducted on Schedule 1.
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Step 1: Find net profit from self-employment
Start with the bottom line of every Schedule C (and Schedule F for farmers), plus a general partner's share of partnership ordinary business income and guaranteed payments from Schedule K-1 (box 14, code A). Losses from one business offset profits from another. Exclude income that is not self-employment income: rental income (unless you are a dealer or provide substantial services), investment income, S corporation pass-through income, most limited partner shares, and wages. If net earnings (profit × 92.35 percent) are under US$400 — a profit under about US$434 — stop: no self-employment tax is due.
Step 2: Multiply by 92.35 percent
Net earnings from self-employment = net profit × 0.9235. The 7.65 percent reduction is the mirror image of the employer's share of payroll tax: an employer's 7.65 percent contribution is not part of the employee's wages, so an employee's payroll tax base already excludes it. The 92.35 percent factor puts the self-employed person on the same footing. This is also why the deduction for half the tax does not reduce the base again — the adjustment is built in.
Step 3: Apply the rates
| Line | Computation | Rate |
|---|---|---|
| Social Security | Net earnings, up to (wage base − W-2 Social Security wages already taxed this year) | 12.4 percent |
| Medicare | All net earnings, no cap | 2.9 percent |
| Self-employment tax | Social Security + Medicare | — |
| Additional Medicare Tax (Form 8959) | Net earnings + wages above US$200,000 single / US$250,000 joint / US$125,000 separate | 0.9 percent |
The Social Security wage base is indexed annually (US$184,500 for 2026) and is shared with any W-2 job: if you earned US$100,000 in wages that already carried Social Security tax, only the remaining room under the wage base is subject to the 12.4 percent on your self-employment earnings. Medicare has no ceiling. The Additional Medicare Tax is computed separately on Form 8959 and applies to the combination of wages and self-employment income above the threshold — the threshold is not indexed.
Step 4: Deduct half
One-half of the self-employment tax (the Social Security and Medicare portions, not the Additional Medicare Tax) is an adjustment to income on Schedule 1, reducing adjusted gross income. It flows to Form 1040 and reduces income tax, not self-employment tax. It also reduces qualified business income for the 20 percent deduction.
Optional methods
Two optional methods on Schedule SE let low-income self-employed people (net earnings under a small threshold, or farmers with low gross income) report a higher amount of net earnings than they actually had, in order to earn Social Security coverage credits for the year. They increase the tax owed and are used deliberately by people building a benefits record. For 2026 the nonfarm method is available when net nonfarm profits are under US$8,186 and under 72.189 percent of gross nonfarm income, to someone with at least US$400 of net earnings in two of the prior three years, for no more than five years in all; either method can report up to US$7,560 of net earnings (the farm method applies with gross farm income of US$11,340 or less, or net farm profits under US$8,186).
Worked example
A consultant has US$180,000 of Schedule C profit and a spouse with no earned income; they file jointly. The 2026 wage base is US$184,500.
- Net earnings: US$180,000 × 0.9235 = US$166,230.
- Social Security: US$166,230 is under the wage base, so 12.4% × US$166,230 = US$20,613.
- Medicare: 2.9% × US$166,230 = US$4,821.
- Self-employment tax: US$25,434.
- Additional Medicare Tax: US$166,230 is below the US$250,000 joint threshold — none.
- Deduction: US$12,717 on Schedule 1.
Had she also earned US$60,000 in W-2 wages, the Social Security room would be US$184,500 − US$60,000 = US$124,500, so Social Security tax on self-employment would be 12.4% × US$124,500 = US$15,438 — Medicare unchanged, for self-employment tax of US$20,259 and a deduction of US$10,130. And had the couple's combined earned income crossed US$250,000, the 0.9 percent would apply to the excess on Form 8959.
Frequently asked questions
Why is self-employment tax computed on 92.35 percent?
To match the employee's base: an employer's 7.65 percent share of payroll tax is not part of the employee's wages, so 92.35 percent (100 minus 7.65) puts the self-employed person's base on the same footing.
What is the Social Security wage base this year?
It is indexed annually and published by the Social Security Administration each fall; the Schedule SE instructions state the figure for the year. W-2 wages that already carried Social Security tax use up the same wage base.
Is there a cap on Medicare tax?
No. The 2.9 percent applies to all net earnings, and the 0.9 percent Additional Medicare Tax applies to combined wages and self-employment earnings above US$200,000 (single) or US$250,000 (joint).
Where does self-employment tax go on my return?
Computed on Schedule SE, it flows to Schedule 2 and Form 1040's total tax. The deductible half goes on Schedule 1 as an adjustment to income.
Official sources
The IRS states: “If you have earnings subject to self-employment tax, use Schedule SE to figure your net earnings from self-employment. Before you figure your net earnings, you generally need to figure your total earnings subject to self-employment tax.” — Internal Revenue Service, Self-employment tax (Social Security and Medicare taxes), https://www.irs.gov/businesses/small-businesses-self-employed/self-employment-tax-social-security-and-medicare-taxes
Publication 334 states: “To figure net earnings using the regular method, multiply your self-employment earnings by 92.35% (0.9235).” — Internal Revenue Service, Publication 334, Tax Guide for Small Business, https://www.irs.gov/publications/p334
Next step
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