Self-employment tax

What It Means

Self-employment tax is the Social Security and Medicare tax paid by people who work for themselves, such as freelancersFreelancingWorking for yourself, selling your skills to different clients by the project or the hour instead of holding a long-term job with one employer. See more, independent contractors and sole proprietors. An employee splits these taxes with an employer; a self-employed person pays both shares, which is why the IRS rate is 15.3%: 12.4% for Social Security and 2.9% for Medicare. It's figured on 92.35% of net earningsNet incomeWhat's left after everything is taken out: on a paycheck, pay after taxes and deductions; for a business, profit after all expenses and taxes. See more from self-employment and reported on Schedule SE once those net earnings reach $400 in a year.

How People Say It at Work

• "Don't forget the self-employment tax on top of income tax."
• "I'm paying both halves of Social Security now."
• "Set aside money for SE tax every time a client pays."

The Breakdown

Formula, per the IRS

1. Net earnings = net profit × 92.35%
2. Social Security part = 12.4% of net earnings, up to the year's wage base (for 2026, $184,500 on wages and net earnings combined)
3. Medicare part = 2.9% of all net earnings
4. Self-employment tax = Social Security part + Medicare part

Worked example. Lena designs websites as a sole proprietor. After costs, her 2026 net profit is $40,000 and she has no other job.

Her income tax is figured separately and comes on top. Spread over a year, the self-employment tax alone is about $471 a month to set aside.

What the result means. Self-employment tax is roughly 14.1% of profit (15.3% × 92.35%) until you reach the Social Security wage base. Wages from a job count toward that base first, so someone with a full-time salary and a side business may pay only the Medicare part on the side income once the salary passes it.

Good to Know

The IRS says you must file Schedule SE and pay self-employment tax once your net earnings from self-employment reach $400. Its Social Security part applies only up to the year's contribution and benefit base, which the Social Security Administration puts at $184,500 for 2026 and resets each year from the national average wage index; when checked on October 1, 2026, the 2027 figure hadn't been published, so look it up on ssa.gov before planning for next year. Self-employment tax counts toward the estimated taxQuarterly estimated taxesTax paid to the IRS in four installments during the year on income with no withholding, such as self-employment profit; due April, June, September and January. See more rules on IRS Form 1040-ES, which call for quarterly payments when you expect to owe $1,000 or more after withholding and credits. Ask a tax professional about your own return.

Related Terms and Categories

• Quarterly estimated taxes

  Tax paid to the IRS in four installments during the year on income with no withholding, such as self-employment profit; due April, June, September and January.

• 1099 contractor

  An independent contractor whose pay a business reports on Form 1099-NEC; they're self-employed, so no tax is withheld and they owe self-employment tax.

• Freelancing

  Working for yourself, selling your skills to different clients by the project or the hour instead of holding a long-term job with one employer.

• Gig work

  Short-term, on-demand jobs or sales, often found through an app or website, such as rides, deliveries, errands or selling goods; the IRS treats the pay as taxable income.

• Side hustle

  Paid work done alongside a main job or other commitments, such as freelancing, delivery driving or selling goods; the IRS treats the income as taxable.

• Take-home pay

  The money that actually reaches you from a paycheck after taxes and other deductions are taken out, also called net pay or net income.

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