What Is Self-Employment Tax? Rate, Base, and Deduction
The 15.3 percent Social Security and Medicare tax on net earnings from self-employment — how it is computed and half of it deducted
Reviewed by the Fairlight Accounting cross-border tax team — U.S. & Canadian Tax Desks
Self-employment tax is the Social Security and Medicare tax paid by people who work for themselves. Employees split these taxes with their employer, 7.65 percent each; a self-employed person pays both halves — 15.3 percent — on 92.35 percent of net earnings. The Social Security portion stops at the wage base; Medicare does not. Half is deductible.
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Who pays self-employment tax?
Anyone with US$400 or more of net earnings from self-employment in a year: sole proprietors filing Schedule C, single-member LLC owners (taxed as sole proprietors), general partners and LLC members on their share of partnership business income, and independent contractors paid on 1099s. It is owed in addition to regular income tax, and it applies whether or not the person also has a W-2 job (the wage base is shared across both). It does not apply to S corporation shareholders' distributions (their salary carries payroll tax instead), to limited partners' distributive shares (in most cases), to rental income, or to investment income.
What is the rate?
| Component | Rate | Applies to |
|---|---|---|
| Social Security (old-age, survivors, disability) | 12.4 percent | Net earnings up to the annual wage base (US$184,500 for 2026; US$176,100 for 2025) |
| Medicare (hospital insurance) | 2.9 percent | All net earnings, no cap |
| Additional Medicare Tax | 0.9 percent | Net earnings plus wages above US$200,000 (single), US$250,000 (joint), or US$125,000 (married filing separately) |
| Combined headline rate | 15.3 percent | Net earnings up to the wage base; 2.9 percent (plus 0.9 percent where applicable) above it |
The rate is applied to 92.35 percent of net profit, not 100 percent. That adjustment mimics the employee side: an employee's 7.65 percent is paid on wages that already exclude the employer's 7.65 percent contribution, and the 92.35 percent factor (100 minus 7.65) gives the self-employed person the same base. The calculation guide walks through the arithmetic line by line.
How does it relate to income tax?
They are separate taxes on overlapping income. Income tax is computed on taxable income after all deductions and applies at graduated rates; self-employment tax is computed on net earnings from self-employment at a flat rate and is not reduced by the standard deduction or itemized deductions. A sole proprietor with US$60,000 of net profit and a spouse's US$40,000 salary owes self-employment tax on the US$60,000 regardless of the household's deductions. Both taxes are reported on Form 1040; self-employment tax is computed on Schedule SE and flows to the "other taxes" section.
What is the deduction?
Half of the self-employment tax — the amount that corresponds to the employer's share an employee never sees — is deductible in computing adjusted gross income, on Schedule 1. It does not reduce self-employment tax itself (a circular computation the law avoids by fixing the base at 92.35 percent); it reduces income tax. It also reduces qualified business income for the 20 percent deduction (the QBI guide). The deductibility guide covers the mechanics.
How is it paid?
Nothing is withheld from a self-employed person's income, so self-employment tax is paid through quarterly estimated tax payments along with income tax — and is the component new business owners most often omit from their estimates (the estimated tax safe harbor guide). A person with both a W-2 job and self-employment income can instead increase withholding at the job to cover it.
Worked example
A freelance designer nets US$72,000 on Schedule C and has no other earned income. Net earnings subject to tax: US$72,000 × 92.35% = US$66,492. Below the wage base, so the full 15.3 percent applies: US$10,173 of self-employment tax. Half — US$5,087 — is deducted on Schedule 1, reducing her adjusted gross income to US$66,913 before other adjustments. Her income tax is then computed on taxable income after the standard deduction and the QBI deduction; the US$10,173 is added on top. Her quarterly estimates should have covered both — roughly US$2,500 a quarter for the self-employment tax alone.
Frequently asked questions
What is self-employment tax?
The Social Security and Medicare tax on net earnings from self-employment, at 15.3 percent on 92.35 percent of net profit up to the Social Security wage base and 2.9 percent above it. It replaces the payroll taxes an employer and employee would split.
What is the self-employment tax rate?
15.3 percent — 12.4 percent Social Security plus 2.9 percent Medicare — on net earnings up to the wage base, then 2.9 percent (plus the 0.9 percent Additional Medicare Tax above the high-income thresholds).
Do I pay self-employment tax on all my income?
Only on net earnings from self-employment — Schedule C profit and a general partner's share of partnership business income. Wages, rental income, interest, dividends, capital gains, and S corporation distributions are excluded.
Is self-employment tax in addition to income tax?
Yes. It is a separate tax computed on Schedule SE and added to income tax on Form 1040. Half of it is deductible against income.
Official sources
The IRS states: “Self-employment tax is a tax consisting of Social Security and Medicare taxes primarily for individuals who work for themselves. It is similar to the Social Security and Medicare taxes withheld from the pay of most wage earners.” — 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: “Generally, you must pay SE tax and file Schedule SE (Form 1040) if your net earnings from self-employment were $400 or more. Use Schedule SE (Form 1040) to figure net earnings from self-employment.” — Internal Revenue Service, Publication 334, Tax Guide for Small Business, https://www.irs.gov/publications/p334
Next step
Fairlight Accounting is a cross-border accounting and tax practice with a U.S. Tax Desk and a Canadian Tax Desk. Our U.S. Tax Desk handles Schedule C and Schedule SE preparation, estimated-tax planning that includes self-employment tax, and S corporation analysis for owners looking to reduce it. See pricing or book a call.
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