How to calculate self-employment tax

Self-employment tax is Social Security and Medicare tax for people who work for themselves. It is 15.3% of 92.35% of your net profit, owed once your net earnings reach $400, and it comes on top of regular income tax.

Who owes it

You generally owe self-employment tax if your net earnings from self-employment are $400 or more in a year. That includes freelancers, independent contractors, gig workers and sole owners of a small business.

How it is figured

Start with net profit from Schedule C. Multiply by 92.35% to get the amount subject to the tax. Then multiply by 15.3%: 12.4% for Social Security and 2.9% for Medicare.

The Social Security part has a cap

Only the first $184,500 of combined wages and self-employment earnings pays the Social Security part in 2026. The Medicare part has no cap, and earnings above $200,000 for a single filer pay an extra 0.9%.

Half of it comes off your income

You can deduct the employer-equivalent half of self-employment tax on Schedule 1 when figuring adjusted gross income. It reduces income tax, but you still pay the full self-employment tax.

Why the 92.35% step exists

An employer's half of Social Security and Medicare tax, 7.65%, is a business cost that never shows up in an employee's taxable wages. To treat self-employed people the same way, the law first takes 7.65% off your profit: 100% − 7.65% = 92.35%.

So you never pay 15.3% on your whole profit. The effective rate is 15.3% × 92.35%, about 14.1% of net profit, as long as your earnings stay under the Social Security wage base.

Figuring your net profit

Net profit is what your business brought in minus ordinary and necessary business expenses. You report both on Schedule C. Common expenses include supplies, software, equipment, advertising, business insurance, the business share of your phone and internet, and car miles driven for work.

Personal costs don't count, even if you work from them. A commute from home to a regular workplace is personal, and so is the part of your phone bill used for personal calls. Keep records that show the business purpose of each cost.

Self-employment tax and income tax together

Self-employment tax is separate from income tax, and you owe both. Your profit is added to any other income, then income tax is figured with the usual brackets after the standard deduction and the deduction for half of self-employment tax.

Many freelancers find that self-employment tax is bigger than their income tax, especially at lower incomes. That is because income tax has a standard deduction and low starting brackets, while self-employment tax applies from the first dollar once net earnings reach $400.

Paying it during the year

No one withholds tax from self-employment income, so the IRS expects quarterly estimated payments if you will owe $1,000 or more when you file. Payments are generally due April 15, June 15, September 15 and January 15 of the following year.

To avoid an underpayment penalty, most people pay at least 90% of this year's tax or 100% of last year's tax, whichever is smaller. If last year's adjusted gross income was over $150,000, the second test is 110%. If you also have a W-2 job, you can raise your paycheck withholding instead of, or as well as, making estimated payments.

Ways to lower it legally

The main lever is deducting every real business expense on Schedule C, since self-employment tax is figured on profit. A home office used regularly and only for business, business mileage and equipment all have IRS rules worth reading before you claim them.

Some breaks lower income tax but not self-employment tax. Contributions to a retirement plan for the self-employed and the deduction for self-employed health insurance premiums are both taken on your Form 1040, after profit is figured. They are still worth it for the income tax savings.