How Self-Employment Tax Works in 2026, With Examples

What self-employment tax is

Self-employment tax is Social Security and Medicare tax for people who work for themselves. It funds the same programs as the payroll tax taken from a regular paycheck. The rate is 15.3%, and it applies to 92.35% of your net self-employment earnings. It is separate from federal income tax, so most freelancers owe both.

An employee splits these taxes with their employer. Each side pays 6.2% for Social Security and 1.45% for Medicare. When you are self-employed, you are both sides, so you pay the full 12.4% + 2.9%. You figure it on Schedule SE and report it with Form 1040.

It generally applies to sole proprietors, independent contractors, gig workers and partners in a business. If your net earnings from self-employment (after the 92.35% step) are under $400, you owe no self-employment tax for the year.

The 2026 rates and limits

Two parts make up the 15.3% rate, and they follow different rules. Social Security stops at a yearly earnings cap. Medicare has no cap and can add an extra 0.9% at higher incomes.

Sources: IRS Topic 554, Self-Employment Tax and the SSA wage base announcement. For 2027, the SSA has already set the Social Security wage base at $192,300.

How the calculation works, step by step

The math follows a set order. Each step builds on the one before it, and Schedule SE walks through the same sequence line by line.

1. Find net profit. Start with business income minus business expenses, usually from Schedule C.
2. Multiply by 92.35%. This gives your net earnings from self-employment. The step mirrors the fact that employees don’t pay payroll tax on the employer’s half.
3. Apply 12.4% for Social Security, but only up to the wage base. If you also have W-2 wages, those wages use up part of the $184,500 first.
4. Apply 2.9% for Medicare to all your net SE earnings.
5. Check for Additional Medicare Tax. A 0.9% tax applies to SE earnings above your threshold, which is reduced by any W-2 wages.
6. Deduct half. Half of your SE tax (not counting the Additional Medicare Tax) is an adjustment to income. It lowers your income tax, not the SE tax itself.

Worked example: $80,000 of freelance profit

Here is a freelancer with $80,000 of net profit in 2026 and no W-2 job. Their earnings are well under the Social Security cap.

• Net SE earnings: $80,000 × 92.35% = $73,880
• Social Security: $73,880 × 12.4% = $9,161.12
• Medicare: $73,880 × 2.9% = $2,142.52
• Total SE tax: $9,161.12 + $2,142.52 = $11,303.64
• Deduction for half of SE tax: $11,303.64 ÷ 2 = $5,651.82

So the SE tax alone is about 14.13% of the $80,000 profit. Federal income tax is owed on top of this, after the $5,651.82 adjustment and the standard deduction. State taxes are not included here.

Adding income tax to the same example

To see the full federal bill, carry the numbers into income tax. This assumes a single filer with no other income, deductions or credits.

• Adjusted gross income: $80,000 − $5,651.82 = $74,348.18
• Taxable income: $74,348.18 − $16,100 = $58,248.18
• Income tax: $5,800 + 22% × ($58,248.18 − $50,400) = $5,800 + $1,726.60 = $7,526.60
• Total federal tax: $11,303.64 + $7,526.60 = $18,830.24

That is about 23.54% of the $80,000 profit. The example leaves out the qualified business income (QBI) deduction, which lets many self-employed people deduct up to 20% of their qualified business income and would lower the income tax part. Credits, retirement contributions and other deductions could lower it further. For many freelancers, SE tax is a bigger bill than income tax, which surprises people in their first year.

Worked example: freelancing on top of a W-2 job

If you also earn wages, your employer has already paid Social Security tax on them. Those wages count toward the same $184,500 cap.

Take a single filer with $150,000 of W-2 wages and $60,000 of side-business profit in 2026.

• Net SE earnings: $60,000 × 92.35% = $55,410
• Social Security room left: $184,500 − $150,000 = $34,500
• Social Security: $34,500 × 12.4% = $4,278 (the remaining $20,910 is not taxed for Social Security)
• Medicare: $55,410 × 2.9% = $1,606.89
• SE tax on Schedule SE: $4,278 + $1,606.89 = $5,884.89

Additional Medicare Tax also applies. The single threshold is $200,000, reduced by $150,000 of wages, leaving $50,000. SE earnings above that are $55,410 − $50,000 = $5,410, and $5,410 × 0.9% = $48.69. The deduction for half of SE tax is based on $5,884.89 only, so it comes to $2,942.45 after rounding to the cent.

The Additional Medicare Tax is figured on Form 8959, not Schedule SE. It is also not part of the half-SE deduction.

If this person’s wages had already reached $184,500, the Social Security line would be $0. They would owe only the 2.9% Medicare part on their side income, plus any Additional Medicare Tax.

What reduces self-employment tax

SE tax is based on net profit, so the main lever is legitimate business expenses. Each dollar of deductible expense lowers both SE tax and income tax.

• Business expenses on Schedule C, such as supplies, software, a share of phone costs and business travel, all reduce net profit.
• Vehicle costs for business driving can be deducted with the standard mileage rate or actual expenses.
• Things that do not reduce SE tax include the standard deduction, itemized deductions, the half-SE deduction itself and retirement contributions. Those lower income tax only.

On $1,000 of extra business expenses with no W-2 wages, SE tax drops by $1,000 × 92.35% × 15.3%, which is about $141. Income tax drops too, by roughly your marginal rate on the amount.

Expenses must be ordinary and necessary for your business, and you need records to back them up. Personal costs do not count, even if you pay them from a business account.

Lowering SE tax also lowers the earnings credited to your Social Security record. Those earnings help decide your future retirement and disability benefits. That trade-off is one reason to report income accurately rather than aim for the smallest possible figure.

Business structure can matter too. Some owners of S corporations pay themselves wages through payroll instead of paying SE tax on all profit. Those rules are complex and come with their own costs, so they are best reviewed with a tax professional.

Paying it: quarterly estimated taxes

No employer withholds tax for self-employed income, so the IRS expects you to pay during the year. Most people do this with quarterly estimated payments using Form 1040-ES.

Estimated payments cover both income tax and SE tax. Some freelancers set aside a fixed share of each payment they receive so the quarterly bill is ready when it comes due. Paying too little during the year can lead to an underpayment penalty. If you also have a W-2 job, raising your paycheck withholding is another way to cover the tax. The Form 1040-ES instructions explain the safe harbor rules, and a tax professional can help with your specific case.

Business costs lower net profit and so lower SE tax too. For example, the 2026 business mileage rate is 72.5 cents a mile through June 30 and 76 cents from July 1. See our mileage calculator. To see how SE tax compares with your income tax bracket, read marginal vs effective tax rate.

Run your own numbers with the Self-Employment Tax Calculator.