# How to calculate self-employment tax

> Multiply net profit by 92.35%, then by 15.3%. Pay it during the year with quarterly estimated payments.

Source: https://www.walletprep.com/learn/self-employment-tax/ · Updated 2026-10-04 · Work and income

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.

## Key facts
- **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.

## A worked example: a full-time freelancer's self-employment tax
Leah is a freelance designer. Clients paid her $48,000 this year, and she spent $6,000 on software, a laptop and supplies. She has no other job.

- Client payments: $48,000
- Business expenses: −$6,000
- Net profit: = $42,000
- Taxable share (92.35%): $38,787
- Social Security (12.4%): $4,809.59
- Medicare (2.9%): $1,124.82
- Self-employment tax: = $5,934.41
- Half she can deduct: $2,967.21

1. Net profit is $48,000 − $6,000 = $42,000. Then $42,000 × 92.35% = $38,787 is subject to the tax.
2. Social Security is $38,787 × 12.4% = $4,809.59. Medicare is $38,787 × 2.9% = $1,124.82. Together that is $5,934.41.
3. She deducts half, $2,967.21, on Schedule 1. For estimated payments, $5,934.41 ÷ 4 = about $1,484 a quarter, before income tax.

## Common mistakes
- **Planning only for income tax.** Many first-year freelancers set aside 10% or 15% for income tax and forget self-employment tax. On profit, the self-employment part alone is about 14%.
- **Taking the 15.3% on all profit.** Apply the 92.35% step first. Skipping it makes the tax about 8% too high, which can lead you to overpay estimated tax.
- **Waiting until April to pay.** If you will owe $1,000 or more, skipping quarterly payments can bring an underpayment penalty, even if you pay everything when you file.

## Questions people ask
### Do I pay self-employment tax if I also have a W-2 job?
Yes, on your self-employment profit. Your W-2 wages count toward the Social Security wage base, so only very high combined earnings reduce the Social Security part. The Medicare part always applies.

### Is self-employment tax the same as quarterly taxes?
No. Self-employment tax is one of the taxes you owe. Quarterly estimated payments are how you pay it, along with income tax, during the year.

### Which form do I use for self-employment tax?
You figure it on Schedule SE and attach it to Form 1040. Your profit comes from Schedule C, and the deduction for half goes on Schedule 1.

### Does self-employment tax count toward my Social Security?
Yes. It is how self-employed people pay into Social Security and Medicare, the same programs employees fund through payroll tax. Reported earnings go on your Social Security record.

## Do this today
Add up your self-employment profit so far this year and run it through the calculator below. Then schedule your next estimated payment in your IRS online account for the coming due date.

## Sources
- [IRS Topic 554: Self-employment tax](https://www.irs.gov/taxtopics/tc554)
- [IRS: 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)
- [IRS: Estimated taxes](https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes)
- [IRS Form 1040-ES: Estimated tax for individuals](https://www.irs.gov/pub/irs-pdf/f1040es.pdf)
- [IRS Topic 751: Social Security and Medicare withholding rates](https://www.irs.gov/taxtopics/tc751)

_General education, not personalized financial, tax or legal advice. Figures are examples. Check current rates and limits before you act._