Self-Employment Tax in Tennessee (2026)

Fact-checked by the LegalGlass editorial team against primary sources · Published Aug 20, 2026 · Last updated Aug 20, 2026

If you are self-employed in Tennessee you pay the federal self-employment (SE) tax of 15.3% on net earnings — 12.4% for Social Security up to the annual wage base plus 2.9% for Medicare with no cap — reported on Schedule SE with Form 1040. Tennessee imposes no general individual income tax on wages or self-employment earnings, so a sole proprietor's profit escapes state income tax; entities such as LLCs, however, are subject to Tennessee franchise and excise tax.

What Self-Employment Tax Is in Tennessee

Self-employment tax is the Social Security and Medicare tax paid by people who work for themselves. As an employee, you and your employer each cover half of these payroll taxes and the amounts leave every paycheck automatically. When you are self-employed — a sole proprietor, an independent contractor, a partner, or the owner of a single-member Tennessee LLC taxed as a disregarded entity — there is no employer to cover half, so you pay both halves. The combined rate is 15.3% of net earnings from self-employment. It is a federal tax imposed by 26 U.S. Code § 1401 and collected by the IRS, entirely separate from federal and Tennessee income tax, and it funds your own future Social Security and Medicare benefits.

The 15.3% splits into 12.4% for Social Security (old-age, survivors, and disability insurance) and 2.9% for Medicare hospital insurance. The Social Security portion applies only up to the annual Social Security wage base published by the Social Security Administration; once your combined wages and self-employment earnings reach that ceiling, no further 12.4% is due for the year. The Medicare portion has no ceiling and applies to every dollar of net earnings. Because the tax attaches to earnings rather than to residence, a freelancer in Tennessee owes exactly the same federal SE tax as one in any other state. Use our self-employment tax calculator to estimate the number.

How Net Earnings Are Calculated

You do not pay SE tax on gross revenue. You pay it on net earnings from self-employment, defined in 26 U.S. Code § 1402. In practice you start with net profit from the business — usually the bottom line of Schedule C — and multiply it by 92.35% before applying the 15.3% rate. That factor accounts for the employer-equivalent half of the tax. If net earnings from self-employment are below $400 for the year, you generally owe no SE tax and do not file Schedule SE.

The tax is computed on Schedule SE (Form 1040), and multiple businesses are combined on a single Schedule SE. Partners in a Tennessee partnership report their distributive share of self-employment earnings from Schedule K-1. Rental income and most investment income are not subject to SE tax, and neither are wages you already receive as an employee — those were taxed through payroll withholding instead. Ordinary and necessary business expenses reduce net profit and therefore reduce SE tax directly, which is why disciplined expense tracking is worth real money.

The Additional Medicare Tax

High earners owe an extra 0.9% Additional Medicare Tax on combined wages and self-employment income above a threshold: $200,000 for single filers, $250,000 for married filing jointly, and $125,000 for married filing separately. The surtax sits on top of the regular 2.9% Medicare portion, so the marginal Medicare rate reaches 3.8% above the threshold. Unlike the base self-employment tax it is not split with anyone — it is a tax on you as the earner, reconciled on Form 8959 with your Form 1040. The thresholds are not indexed for inflation, so more taxpayers cross them each year.

The Deduction for One-Half of SE Tax

Because employees never pay income tax on the employer half of payroll taxes, the tax code lets self-employed people deduct one-half of their self-employment tax as an above-the-line adjustment to income on Form 1040. The deduction lowers federal taxable income — and, in states that start from federal figures, state taxable income — but it does not reduce the SE tax itself. You can take it even if you claim the standard deduction. Self-employed people may also deduct qualifying health insurance premiums and contributions to a SEP-IRA or Solo 401(k), which further reduce income tax but again leave the 15.3% SE tax untouched.

Quarterly Estimated Payments

Because no employer withholds from your pay, the IRS expects most self-employed people to make quarterly estimated tax payments covering income tax and self-employment tax together. You use Form 1040-ES, and the four federal installments are generally due April 15, June 15, September 15, and January 15 of the following year. Underpaying triggers an IRS underpayment penalty even if you settle the balance in April. Tennessee has no general individual income tax, so a sole proprietor normally makes federal estimates only — a genuine simplification compared with most states. If you operate through an LLC or corporation, however, franchise and excise tax has its own filing and payment calendar with the Tennessee Department of Revenue, and estimated payments can be required there. Keep an EIN and clean books either way.

Tennessee State Tax on Self-Employment Income

Tennessee does not levy a general individual income tax on wages, salaries, or self-employment earnings. The former Hall income tax, which applied only to certain interest and dividend income, has been repealed, so a Tennessee sole proprietor generally pays no state income tax on Schedule C profit. That makes the federal 15.3% SE tax the dominant tax on a Tennessee freelancer's earnings. The picture changes once you use an entity: Tennessee imposes franchise and excise tax on LLCs, corporations, and other limited-liability entities doing business in the state, administered by the Tennessee Department of Revenue and reported on Form FAE170. That is a meaningful planning point, because in most states forming an LLC is tax-neutral while in Tennessee it can add a state-level entity tax. Businesses making taxable sales also need a Tennessee sales tax registration and, in most counties and cities, a business license under the business tax rules. Weigh those costs before choosing an entity — see forming a Tennessee LLC and Tennessee LLC tax filing.

Reducing the Bite: Retirement and Health Deductions

You cannot avoid self-employment tax on net earnings, but you can shrink the income tax that stacks on top of it. Self-employed people in Tennessee can deduct contributions to a SEP-IRA, a SIMPLE IRA, or a Solo 401(k), often sheltering a large share of profit while building retirement savings. If you buy your own coverage, the self-employed health insurance deduction covers medical, dental, and qualifying long-term-care premiums for you and your family. A qualified business income (QBI) deduction of up to 20% of pass-through profit may also apply. None of these reduce the 15.3% SE tax, but together they can meaningfully lower the combined bill.

Good records make these deductions defensible. Track every ordinary and necessary expense, keep receipts, and separate business and personal accounts — easier once you have an EIN and a dedicated business bank account. Log mileage if you drive for work, and learn the home-office rules if you use part of your home exclusively for business. Sloppy records cost far more at tax time than the bookkeeping ever saves.

Common Self-Employment Tax Mistakes

The most expensive mistake is skipping quarterly estimated payments and meeting a large balance plus an underpayment penalty in April. A close second is forgetting that SE tax sits on top of income tax, so new freelancers set aside far too little; reserving roughly 25% to 30% of net profit for combined federal SE and income tax is a common starting rule before adding any Tennessee tax. Others miss the deduction for one-half of SE tax, misclassify hobby income, or assume that forming an LLC eliminates the tax — it does not, because a single-member LLC is disregarded by default and every dollar of profit stays subject to the 15.3%.

Another trap is waiting too long to consider an S-corporation election. The strategy only pays once profit comfortably exceeds a reasonable salary, and the Form 2553 deadline is easy to miss. Payroll, a separate 1120-S return, and reasonable-compensation risk are the offsetting costs. Because rates, thresholds, and the Social Security wage base change annually, verify current figures with the IRS and the Tennessee Department of Revenue before you file or pay.

Frequently Asked Questions

Does Tennessee tax self-employment income?

Tennessee has no general individual income tax on wages, salaries, or self-employment earnings, and the former Hall tax on interest and dividends has been repealed. A Tennessee sole proprietor still owes the 15.3 percent federal self-employment tax on Schedule SE.

What is the self-employment tax rate in Tennessee?

The federal rate is 15.3 percent of net earnings: 12.4 percent Social Security up to the annual wage base plus 2.9 percent Medicare with no cap. Because Tennessee imposes no general individual income tax, that federal tax is the main tax on a Tennessee freelancer's profit.

Does a Tennessee LLC pay state tax?

Yes. Tennessee imposes franchise and excise tax on LLCs, corporations, and other limited-liability entities doing business in the state, reported to the Department of Revenue on Form FAE170. That makes forming an LLC in Tennessee less tax-neutral than in many other states.

When do I not owe self-employment tax?

If net earnings from self-employment are under $400 for the year, you generally owe no self-employment tax and do not file Schedule SE. Investment income and most rental income fall outside self-employment tax, as do wages already subject to payroll withholding.

Do I make estimated payments in Tennessee?

Federal estimated payments on Form 1040-ES are generally required, due April 15, June 15, September 15, and January 15. Because Tennessee has no general individual income tax, a sole proprietor usually has no state income tax estimates, though entity-level franchise and excise tax has its own schedule.

Does an S-corporation election help in Tennessee?

It can reduce the Social Security and Medicare portion by splitting profit into a reasonable salary plus distributions, but it adds payroll, a separate return, and Tennessee franchise and excise tax exposure at the entity level. Run the numbers before electing.

Related

• Small business tax overview (cluster hub)
• Tennessee LLC tax filing requirements
• How to form an LLC in Tennessee
• S-corp vs LLC: which lowers SE tax?
• Self-employment tax calculator
• How to get an EIN
• Business and tax glossary

Sources

2. IRS — Self-Employment Tax (Social Security and Medicare Taxes) (15.3% rate; $400 filing threshold).
4. IRS — About Schedule SE (Form 1040), Self-Employment Tax.
6. IRS — About Schedule C (Form 1040), Profit or Loss From Business.
8. IRS — Estimated Taxes (quarterly payments).
10. IRS — About Form 1040-ES, Estimated Tax for Individuals.
12. IRS — Questions and Answers for the Additional Medicare Tax (0.9% surtax).
14. IRS — Business Structures.
16. IRS — Single Member Limited Liability Companies (disregarded-entity default).
18. IRS — About Form 2553, Election by a Small Business Corporation.
20. Cornell Legal Information Institute — 26 U.S. Code § 1401 — Rate of tax.
22. Cornell Legal Information Institute — 26 U.S. Code § 1402 — Definitions.
24. Social Security Administration — Contribution and Benefit Base (annual Social Security wage base).
26. Tennessee Department of Revenue — Franchise & Excise Tax.
28. Tennessee Department of Revenue — BUS-13, Business Licenses Overview.
30. Tennessee Secretary of State — Business Services.

LegalGlass provides general information for educational purposes and is not legal advice, is not a law firm, and is not a substitute for advice from a licensed attorney or tax professional. Laws, fees, and thresholds change; verify current requirements with the IRS and the Tennessee Department of Revenue before acting.