Self-Employment Tax Explained

Self-employment tax is how self-employed people pay into Social Security and Medicare. It is a combined 15.3 percent, made of 12.4 percent for Social Security up to an annual wage base plus 2.9 percent for Medicare with no cap, because you cover both the employee and the employer halves. It applies on top of your income tax, you can deduct half of it, and estimated quarterly payments are usually required.

What Is Self-Employment Tax?

Self-employment tax, often shortened to SE tax, is the Social Security and Medicare tax paid by people who work for themselves. When you are an employee, these taxes are split between you and your employer, and your share is withheld from every paycheck. When you are self-employed, there is no employer on the other side of that split, so you pay both parts yourself. That is the whole reason SE tax exists.

According to the IRS, self-employment tax applies to sole proprietors, independent contractors, freelancers, and members of most partnerships once their net earnings reach a set threshold. It is separate from, and paid on top of, your regular income tax, and it is a real cost that many first-time freelancers overlook until their first tax bill arrives. To see how take-home pay compares between an employee paycheck and self-employment, the Salary Calculator can help you frame the difference before you dive into the numbers below.

How Self-Employment Tax Works: The 15.3 Percent Split

The combined SE tax rate is 15.3 percent under current law. That single number is really two taxes stacked together, and each one behaves differently. Knowing the split explains why the rate is what it is and where it can change.

The 12.4 percent Social Security portion applies only up to an annual Social Security wage base, a dollar limit that the IRS adjusts every year. Once your combined wages and net self-employment earnings pass that base, the Social Security portion stops. The 2.9 percent Medicare portion has no ceiling at all, so it applies to every dollar of your net earnings no matter how high they go.

Compare this to an employee. A worker and their employer each pay 6.2 percent for Social Security and 1.45 percent for Medicare, which is 7.65 percent per side. Add the two sides and you get the same 15.3 percent. As a self-employed person, you simply sit on both sides of that table. The chart below shows how the combined rate breaks into its two pieces.

Worked Example: SE Tax on 60,000 Dollars of Profit

The rate is only half the story. SE tax is not charged on your full net profit. First you multiply your net self-employment profit by 92.35 percent, and the 15.3 percent rate applies to that smaller figure. This step exists to mirror the employer-side deduction that employees effectively receive, so self-employed people are not taxed on the portion an employer would have covered.

Walk through a freelancer with 60,000 dollars of net profit. Multiply 60,000 by 0.9235 to get 55,410 dollars of net earnings subject to SE tax. Apply the 15.3 percent rate to 55,410, and the SE tax is about 8,478 dollars. Because we are well under the Social Security wage base here, the full amount is taxed at the combined rate.

So on 60,000 dollars of profit, the SE tax is roughly 8,478 dollars, and you can later deduct about 4,239 dollars of that when figuring your income tax. This sits on top of income tax, so it is not your entire tax bill. The chart below shows how the profit divides into the untaxed slice, the Social Security part, and the Medicare part.

The Deduction for Half Your SE Tax

One feature softens the blow. The IRS lets you deduct one half of your self-employment tax when you calculate your adjusted gross income. This is not a deduction against the SE tax itself; it lowers the income on which your regular income tax is figured. In the example above, that means about 4,239 dollars comes off your income before income tax is applied.

This deduction is available whether or not you itemize, because it is an adjustment to income rather than an itemized deduction. It reflects the fact that an employer would normally deduct its share of these taxes as a business expense, so the tax code gives self-employed people a comparable break. If you want to understand how deductions like this move the number your income tax is actually based on, our sibling guide on the difference between gross and net income lays out the layers clearly.

Who Pays Self-Employment Tax and When

SE tax is not optional once you clear the earnings threshold, and it is usually paid in installments across the year rather than all at once. Two rules decide whether and how you pay.

The Earnings Threshold

The IRS generally requires SE tax once your net earnings from self-employment reach 400 dollars in a year. Below that small threshold, SE tax typically does not apply, though you may still owe income tax. This threshold is a long-standing figure, but because tax rules can change, confirm the current amount with the IRS rather than assuming it from an older article.

Quarterly Estimated Payments

Employees have taxes withheld automatically, but self-employed people usually do not. To avoid a large bill and possible penalties, the IRS expects you to make estimated tax payments four times a year, covering both your SE tax and your income tax. Setting aside a portion of every payment you receive is the simplest way to stay ready. A tool like the Cash Flow Calculator can help you plan for those quarterly outflows so a payment date never catches you short.

The Social Security Wage Base and Higher Earners

The 12.4 percent Social Security portion stops once your combined earnings reach the annual wage base, so very high earners pay that part on only a slice of their income. The 2.9 percent Medicare portion keeps applying to every dollar, and an Additional Medicare Tax can apply above certain income levels. Both the wage base and those thresholds are set by the IRS and change over time, so always check the current figures. If you also want to understand how your income tax rate is built on top of all this, see our sibling explainer on marginal versus effective tax brackets.

FAQs About Self-Employment Tax

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Educational note: This article is general information, not tax, financial, or legal advice. Self-employment tax thresholds, the Social Security wage base, and higher-income rules change from year to year, so confirm the current figures with the IRS and consult a qualified tax professional about your own situation. The 15.3 percent rate and its 12.4 percent and 2.9 percent parts reflect current law at the time of writing. Reviewed for accuracy by Prof. Dr. Khalil Mudassar, PhD, as part of our editorial review process. Content last reviewed September 10, 2026.