Self-Employment Tax: How It Works and How to Calculate It

When you work for yourself in the US, you owe self-employment tax, a 15.3% tax that comes on top of income tax. Clients pay you in full, with nothing taken out. So many new freelancers first meet this tax as a bill in April.

Self-employment tax is the Social Security and Medicare tax you pay to the IRS when you work for yourself. For 2026 the rate is 15.3%: 12.4% for Social Security and 2.9% for Medicare. It's charged on 92.35% of your net profit, and you owe it once your net earnings from self-employment reach $400 in a year.

It's separate from income tax, so you pay both. The Social Security part stops at $184,500 of earnings. The Medicare part has no limit.

What self-employment tax is and why you pay both halves

When you had a job, you paid half of Social Security and Medicare tax through payroll. Your employer paid the other half. Now there's no employer to share the cost, so you pay both halves. The 15.3% is the same combined tax that applies to wages, but one person covers all of it.

That's why the rate surprises most new freelancers. It looks high next to what employees pay, because employees only ever saw their own half.

Income tax works differently. It depends on your total income, your deductions and your filing status. Self-employment tax is a fixed percentage of your business profit, with a yearly limit on the Social Security part.

You report both on your annual Form 1040. The same estimated payments cover both. So the money you set aside during the year has to cover both too.

Checking whether the tax applies to you

Before you run any numbers, make sure the tax is yours to pay. For this tax, the IRS treats these people as self-employed:

• sole proprietors and independent contractors, including freelancers and people paid on Form 1099
• partners in a partnership
• members of an LLC taxed as a partnership
• owners of a "disregarded" single-member LLC, meaning the IRS ignores the LLC for income tax and taxes the owner directly
• members of a qualified joint venture: a married couple running a business together who chose this status

Say you formed a one-member LLC and haven't chosen corporate tax treatment. You pay self-employment tax on the LLC's profit, just like a sole proprietor. The LLC gives you legal protection, but it doesn't change this tax. LLC vs Sole Proprietorship compares the two in more detail.

Maybe you kept a W-2 job and run the business on the side. Then you pay self-employment tax on the side profit. The Social Security limit applies to both incomes together, and your wages count first. If your wages are already above the limit, you pay only the 2.9% Medicare part on the side profit. Getting Social Security benefits doesn't exempt you either.

Some of your clients may never send you a Form 1099-NEC. You still owe the tax on all business income. Clients have to send that form only above a threshold. For payments made in 2026 it's $2,000, and before 2026 it was $600.

Some people are outside the tax or can get an exemption:

• anyone with net earnings from self-employment under $400 (for church employee income, the threshold is $108.28)
• ministers and members of religious orders with an approved exemption on Form 4361
• members of certain religious sects with an exemption on Form 4029
• people paid notary fees, and some government employees paid on a fee basis, for that income
• US residents covered by a social security agreement with another country, who attach a statement from that country
• nonresident aliens in general (covered in a separate section below)

If you own an S corporation and pay yourself a salary, payroll taxes apply to that salary instead. To pay self-employment tax, you need a Social Security number (Form SS-5) or an ITIN (Form W-7).

Self-employment tax rates and limits for 2026

If the tax applies to you, the next step is finding the right numbers for the year. These are the rates and limits for 2026.

The 0.9% threshold depends on your filing status. It's $200,000 for a single filer and $250,000 for married filing jointly. For married filing separately, it's $125,000.

The Social Security limit is called the wage base. The Social Security Administration changes it every year, so the figure you find depends on how old the guide is.

You report the 0.9% Additional Medicare Tax on Form 8959. If you also have W-2 wages, they reduce the self-employment threshold, though not below zero. A self-employment loss doesn't change it.

Nothing is withheld for this tax from self-employment income. You also can't assign an estimated payment just to it. Your estimated payments only need to cover your total tax.

How to calculate self-employment tax from your profit

Now you can work out your own number. The calculation follows Schedule SE, and with your profit figure in hand it takes a few minutes.

1. Find your net profit: gross business income minus ordinary and necessary business expenses. This is the profit on Schedule C.
2. Multiply the net profit by 92.35% (0.9235). That's your net earnings from self-employment. If it's under $400, you owe no self-employment tax.
3. Multiply that by 12.4% for Social Security, but only up to $184,500 for 2026. If you also have W-2 wages, subtract them from $184,500 first.
4. Multiply the full result of step 2 by 2.9% for Medicare. This part has no limit.
5. Add steps 3 and 4. The total is your self-employment tax.
6. Deduct half of the tax when you figure your adjusted gross income. The deduction goes from Schedule SE to Schedule 1. It lowers your income tax, but the self-employment tax stays the same.

The 92.35% step exists because an employee doesn't pay Social Security and Medicare tax on the half the employer pays. Taxing 92.35% of profit gives you a similar reduction.

Say your first year brings $30,000 of net profit in 2026. We did this arithmetic ourselves with the 2026 rates above, rounding to the cent:

1. $30,000 x 92.35% = $27,705.00
2. Social Security: $27,705.00 x 12.4% = $3,435.42
3. Medicare: $27,705.00 x 2.9% = $803.45
4. Self-employment tax: $3,435.42 + $803.45 = $4,238.87
5. Half you can deduct for income tax: $2,119.44

The tax at different profit levels

The same steps give quite different results as your profit grows. The table below is also our own calculation with 2026 rates. It's for a single filer with no W-2 wages. It doesn't include income tax or state tax.

At $200,000 of profit the Social Security limit kicks in. The 12.4% applies only to $184,500, which gives $22,878.00. The 2.9% applies to the full $184,700, which gives $5,356.30.

The "30% rule" you'll hear about

Sooner or later someone tells you to set aside 30% of income for taxes. Many articles say the same. The IRS doesn't publish any such rule. Self-employment tax alone is about 14.13% of net profit below the limit.

Income tax comes on top, and it depends on your total income, your deductions and your filing status. State tax may apply too. So your real total can be lower or higher than 30%. Tax software or a tax professional can estimate the actual figure for you.

The forms you'll meet at tax time

The calculation ends up on a few IRS forms. These are the ones you'll deal with:

• Schedule C (Form 1040) shows your business profit or loss.
• Schedule SE (Form 1040) calculates the tax, and the result goes to Schedule 2.
• Schedule 1 (Form 1040) is where you deduct half of the tax.
• Form 1040-ES has the worksheet and vouchers for estimated payments.
• Form 8959 covers the 0.9% Additional Medicare Tax, if it applies to you.

You file Schedule C and Schedule SE with your Form 1040, due April 15. You must file them if your net earnings are $400 or more, even if you owe no income tax.

April 15 and the estimated tax payments after it

Knowing the amount is half the job, because the IRS also cares when you pay it. An employer used to take tax out of every paycheck. Nobody does that for you now, but the IRS still expects the tax during the year. In general, you must make estimated payments if you expect to owe $1,000 or more when you file.

This catches a lot of new freelancers. They pay nothing until April. Then they face the full bill plus a penalty.

You can skip the January payment if you file your 2026 return by February 1, 2027 and pay all the tax due with it.

How much is enough to avoid a penalty

You generally avoid an underpayment penalty if your payments during the year cover the smaller of two amounts. One is 90% of your tax for the current year. The other is 100% of your tax for the previous year. That becomes 110% if your previous-year adjusted gross income was over $150,000 ($75,000 if married filing separately).

You don't need to pay estimated tax for 2026 if all three of these are true:

• You had no tax liability for 2025.
• You were a US citizen or resident alien for the whole year.
• Your 2025 tax year covered 12 months.

The IRS works out the penalty separately for each underpayment and for the days it stays unpaid. If your income comes in unevenly, the annualized income method on Form 2210 can reduce it. The IRS may also waive it in certain cases.

Sending the money

The IRS accepts estimated payments through:

1. IRS Direct Pay (free)
2. EFTPS (free, but you have to enroll first)
3. your IRS online account
4. a card (with fees)
5. a check sent with a Form 1040-ES voucher

You can also pay weekly, every two weeks or monthly, as long as enough is paid by each due date. Many self-employed people move a fixed share of every client payment into a separate account. Then the money is there when the due date comes.

Looking for ways to shrink the bill

Once you see the full bill, you'll probably want to make it smaller. If your net earnings from self-employment are $400 or more, there's no legal way to avoid the tax entirely. But two things do reduce it.

The first is business expenses. The tax is based on net profit, so every ordinary and necessary expense you record lowers your profit and the tax. That's why accurate expense records matter so much for this tax.

The second is an S corporation election, which can change the result in some cases. An S corporation owner who works in the business must get a reasonable salary, and payroll taxes apply to it. Distributions above the salary aren't subject to employment taxes.

But the IRS can reclassify distributions as wages if the salary is too low. Running payroll also adds work and costs. So talk this decision through with a tax professional first. LLC vs S Corp explains the trade-off.

People often mistake two things for ways to cut the tax. The deduction for half of the tax lowers only your income tax. And not getting a Form 1099 changes nothing, because the tax applies to all business income.

What you get back: Social Security credits

There's one upside to paying this tax. It also builds your own Social Security record. In 2026 you earn one credit for each $1,890 of earnings, up to 4 credits a year. You reach 4 credits at $7,560.

In 2025 one credit took $1,810. In 2024 it took $1,730. Depending on your birth date, you need up to 40 credits to qualify for benefits. That's about 10 years of work.

You may have a year with very low or no profit. For those years, Schedule SE offers "optional methods" that let some people report a small amount of earnings and keep earning credits. They come with income limits and a cap on how often you can use the nonfarm method, so check the current Schedule SE instructions first.

Which business structures change the tax

At some point you may expect a new company to change this tax. The table shows which structures do.

An S corporation owner pays no self-employment tax on salary or distributions. Payroll taxes apply to the salary.

Forming an LLC by itself doesn't change your self-employment tax. The tax treatment changes only if the LLC elects to be taxed as a corporation.

If you live outside the US

If you live outside the US and own a US business, the rules above work differently. Self-employment tax applies to US citizens and US residents. In general, a nonresident alien doesn't pay it on self-employment income.

The exception is a totalization agreement that requires the person to pay it. That's a social security treaty between the US and another country. And a nonresident who becomes a US resident under the tax residency rules pays the tax just like a citizen.

Residency rules and treaties depend a lot on the individual case, so check yours with a tax professional. Foreign-owned single-member LLCs also have their own filing duties, described in Form 5472 for Foreign-Owned US LLCs: Who Must File, Due Date and Penalties.

Mistakes that make the bill bigger

Most problems with this tax come down to a few repeated errors. These are the ones that cost people money:

• Making no estimated payments and facing the full tax plus a penalty in April.
• Using an old wage base from an outdated guide or from the IRS page that still shows the 2024 figure.
• Applying the $400 test to gross income. The $400 means net earnings, after expenses and after the 92.35% step.
• Skipping the 92.35% step and multiplying the full profit by 15.3%. That overstates the tax.
• Expecting the half-tax deduction to lower the self-employment tax. It lowers income tax only.
• Setting money aside for income tax only and forgetting the self-employment part.
• Mixing personal and business money. That makes expenses harder to prove, and any expense you can't show raises your taxable profit.

What to do this month

Start by working out your own figure with the steps above and your 2026 profit so far. Then check that your estimated payments cover it before the next due date. If they don't, start moving a fixed share of each client payment into a separate account now.

While the tax side gets settled, the business still needs to show up where clients look. We help new companies with that part, setting up social media pages, directory listings and a Google profile.

An accountant helps more when your situation has several layers. Examples are W-2 wages alongside a business or an S corporation question. If you live outside the US and own a US company, professional advice is the safer choice. How to Choose an Accountant for a Small Business covers what to look for.