Self-Employment Tax in Vermont (2026)

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

Self-employment tax in Vermont is the federal tax of 15.3% - 12.4% for Social Security and 2.9% for Medicare - computed on Schedule SE (Form 1040). Vermont imposes no separate state self-employment tax. The same net earnings are, however, subject to Vermont personal income tax, and Vermont expects quarterly estimated payments.

Quick Answer

Federal SE tax rate: 15.3% - 12.4% Social Security + 2.9% Medicare
Form: Schedule SE (Form 1040)
Social Security cap: Applies only up to an annual wage base the IRS adjusts each year
Additional Medicare tax: 0.9% above $200,000 single / $250,000 joint / $125,000 MFS
Deduction: Employer-equivalent half deductible in figuring AGI
Vermont SE tax: None - Vermont has no separate self-employment tax
Vermont income tax: Applies to the same net earnings; estimated payments required

What Self-Employment Tax Is

Self-employment tax is Social Security and Medicare tax for people who work for themselves. An employee splits those contributions with an employer; a self-employed person pays both halves. That is the whole reason the rate looks high relative to withholding on a paycheck - it is not an extra tax, it is both sides of the same tax.

The IRS sets the rate at 15.3%, made up of 12.4% for Social Security and 2.9% for Medicare. It is calculated on Schedule SE and attached to Form 1040. It is entirely federal: there is no Vermont version of it, and no Vermont form for it.

Self-employment tax is separate from income tax. A Vermont freelancer with net profit owes federal income tax, Vermont income tax, and self-employment tax on the same dollars. See self-employment tax explained and the SE tax calculator.

Who Pays It in Vermont

You pay self-employment tax if you carry on a trade or business as a sole proprietor or independent contractor, if you are a member of a partnership carrying on a trade or business, or if you are otherwise in business for yourself. That covers most Vermont freelancers, consultants, contractors, tradespeople, farmers, and gig workers.

Owners of a single-member LLC that is disregarded by default are in the same position: the LLC is ignored for federal income tax, the profit lands on Schedule C, and Schedule SE follows. Forming an LLC does not by itself reduce self-employment tax. See single-member LLCs and how to form an LLC in Vermont.

How the 15.3% Is Calculated

Schedule SE does not apply 15.3% to gross revenue. It applies to net earnings from self-employment, which is business profit after deductible business expenses, reduced by a statutory adjustment before the rate is applied. The practical effect is that the tax is computed on a figure below your Schedule C net profit.

The Social Security component applies only up to an annual wage base that the IRS adjusts each year; earnings above it are free of the 12.4% portion. Wages you also earn from a job count against that same base, so a Vermont worker with a W-2 job and a side business may owe only the Medicare portion on the side income. The Medicare component has no ceiling.

An Additional Medicare Tax of 0.9% applies above $200,000 for single filers and heads of household, $250,000 for married filing jointly, and $125,000 for married filing separately. Finally, you may deduct the employer-equivalent portion of the self-employment tax in figuring adjusted gross income - a deduction that reduces income tax but not the self-employment tax itself.

Vermont's Side of the Bill

Vermont does not levy a state self-employment tax. What Vermont taxes is the income. Vermont personal income tax starts from federal adjusted gross income, so your Schedule C profit is already inside the number Vermont taxes, at Vermont's graduated rates.

Because no one withholds Vermont tax from a client payment, the Vermont Department of Taxes expects estimated income tax payments during the year from taxpayers whose income is not subject to withholding. Underpaying can generate interest and penalty even if the annual return is filed on time. Check the current thresholds and due dates at the Vermont Department of Taxes estimated income tax page.

Federal Estimated Payments

The federal side works the same way. Self-employment tax and federal income tax are both paid through quarterly estimated payments on Form 1040-ES. The IRS generally expects payments in four installments across the year, and the safe-harbor rules let you avoid an underpayment penalty by paying a set percentage of the prior year's tax or of the current year's expected tax.

The practical habit that prevents trouble is setting aside a percentage of every payment received rather than calculating quarterly from scratch. A Vermont sole proprietor should reserve for three obligations at once: federal income tax, Vermont income tax, and the 15.3% self-employment tax.

Reducing Self-Employment Tax Legitimately

The first lever is ordinary and necessary business deductions. Every legitimate deduction on Schedule C reduces net profit, which reduces both income tax and self-employment tax. Home office, mileage, equipment, software, professional fees, and health insurance premiums are common and often under-claimed.

The second lever is the S corporation election. An LLC or corporation taxed as an S corporation pays the owner reasonable W-2 wages and can distribute remaining profit without self-employment tax. The cost is real payroll, a separate corporate return, and exposure if the salary is not reasonable. This usually pays off only once profit is comfortably above what a reasonable salary would be. Weigh it at S-corp vs LLC.

Retirement plans are a third lever, but they cut income tax rather than self-employment tax. A SEP-IRA or solo 401(k) contribution reduces taxable income; it does not reduce net earnings from self-employment for Schedule SE purposes.

What Self-Employment Tax Buys You

Self-employment tax is not a pure cost. Paying it credits your Social Security earnings record, which determines eligibility for and the size of future retirement and disability benefits, and it funds your Medicare coverage. Underreporting income to dodge the tax quietly reduces the benefit you will be able to claim decades later.

That is also why the deduction for half the tax exists: Congress mirrored the employer's deductible share so that a self-employed person is not worse off than an employee for income-tax purposes.

Record-Keeping and Filing Checklist

Keep a separate business bank account, track income and expenses monthly, and retain receipts for anything deducted. Reconcile client Forms 1099-NEC against your own records - the IRS matches them, and a missing 1099 does not excuse unreported income.

At filing time, the stack is Form 1040, Schedule C for the business result, Schedule SE for the self-employment tax, and the Vermont individual return. Add an EIN if you hire anyone - it is free from the IRS - and review business licensing, Vermont registered agent requirements if you have formed an entity, and the glossary for terminology. If you are not eligible for a Social Security number, see what an ITIN is.

Frequently Asked Questions

Does Vermont have a self-employment tax?

No. Self-employment tax is a federal tax of 15.3 percent computed on Schedule SE, and Vermont does not impose a separate state version. Vermont does tax the same net earnings as personal income, starting from federal adjusted gross income, and expects quarterly estimated payments on that income.

What is the self-employment tax rate for 2026?

The IRS sets the self-employment tax rate at 15.3 percent, consisting of 12.4 percent for Social Security and 2.9 percent for Medicare. The Social Security portion applies only up to an annual wage base the IRS adjusts each year; the Medicare portion applies to all net earnings without a cap.

Do I pay Vermont income tax on self-employment income?

Yes. Vermont personal income tax begins with federal adjusted gross income, which already includes your Schedule C net profit, and applies Vermont's graduated rates. Because no withholding occurs on client payments, the Vermont Department of Taxes expects estimated income tax payments during the year.

Can forming an LLC in Vermont lower my self-employment tax?

Not by itself. A single-member LLC is disregarded by default, so profit still lands on Schedule C and Schedule SE applies unchanged. Self-employment tax changes only if the entity elects S corporation treatment and pays the owner reasonable wages, with the remaining profit distributed.

Is half of self-employment tax deductible?

Yes. You may deduct the employer-equivalent portion of the self-employment tax in figuring adjusted gross income. The deduction reduces income tax only; it does not reduce the self-employment tax itself or your net earnings from self-employment for Schedule SE purposes.

When are estimated tax payments due?

Both the IRS and Vermont collect tax on non-withheld income through quarterly estimated payments. Federal payments use Form 1040-ES and Vermont publishes its own schedule and vouchers. Missing installments can trigger an underpayment penalty even if the annual return is filed and paid on time.

Sources

IRS - Self-Employment Tax (Social Security and Medicare Taxes) (15.3%; 12.4% + 2.9%; Additional Medicare thresholds; deduction).
IRS - About Schedule SE (Form 1040).
IRS - About Schedule C (Form 1040).
IRS - Estimated Taxes.
IRS - About Form 1040-ES.
Vermont Department of Taxes - Estimated Income Tax.
Vermont Department of Taxes - Individuals (Vermont personal income tax).
Vermont Department of Taxes - Businesses.
IRS - Single Member Limited Liability Companies.
IRS - About Form 2553 (S corporation election).

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 amounts with the Internal Revenue Service and the Vermont Department of Taxes before acting.