Self-Employment Tax Explained: How the 15.3% Is Calculated (With Examples)

Employees split Social Security and Medicare taxes with their employer. When you work for yourself, you pay both halves, and the IRS calls this self-employment tax. It surprises many new freelancers because it is charged on top of income tax, from the first dollars of profit.

The rate

Self-employment tax is 15.3%, made up of two parts:

• 12.4% for Social Security, charged only on earnings up to a yearly limit called the wage base ($184,500 for 2026).
• 2.9% for Medicare, charged on all net earnings with no cap.

Higher earners may owe an additional 0.9% Medicare tax once income passes $200,000 for single filers or $250,000 for married couples filing jointly.

Who owes it

You owe self-employment tax if your net earnings from self-employment are $400 or more in the year. This includes freelancers, independent contractors, gig workers, sole proprietors and partners in a partnership. It applies even if you are also employed, and even if you are over retirement age.

How it is calculated

The IRS does not apply 15.3% to your full profit. It first multiplies net profit by 92.35%, which approximates the employer-side tax deduction that employees would have.

1. Start with net profit from Schedule C: revenue minus business expenses.
2. Multiply by 0.9235.
3. Multiply the result by 0.153, up to the Social Security wage base.
4. Report the result on Schedule SE.

Example 1: Net profit of $50,000. $50,000 x 0.9235 = $46,175. $46,175 x 0.153 = $7,065. That is about 14.1% of profit.

Example 2: Net profit of $200,000. $200,000 x 0.9235 = $184,700, which is just above the 2026 wage base, so the Social Security part is capped. The Medicare part applies to everything, so the total is roughly $28,200 before the additional Medicare tax.

The half-deduction

You can deduct half of your self-employment tax when you calculate your income tax. In Example 1, that is about $3,532 off your adjusted gross income. It is an adjustment on Schedule 1, so you get it even if you take the standard deduction.

What does not reduce it

Many deductions that lower income tax do not reduce self-employment tax. Retirement plan contributions, the self-employed health insurance deduction and the qualified business income deduction reduce income tax only. What lowers self-employment tax is a higher business expense total, which lowers net profit.

If you also have a W-2 job

Social Security tax already withheld from your wages counts toward the same yearly wage base. If your wages are below the base, you still owe the Social Security part on freelance profit until the combined total reaches it.

Ways people reduce it legally

• Track and deduct every legitimate business expense.
• Consider an S corporation once profit is steady and high enough that the savings exceed the extra payroll and filing costs.
• Pay estimated taxes on time to avoid penalties on top of the tax.

Frequently asked questions

Do I pay self-employment tax on losses?

No. If your business has a net loss, you owe none.

Do I get anything for paying it?

Yes. It funds your Social Security and Medicare credits, which affect future retirement and disability benefits.

Is it the same as the tax withheld from a paycheck?

It is the same taxes, but you pay both the employer and employee shares.