What Is Self-Employment Tax? Rate and How to Calculate
Self-employment tax is a 15.3% tax - 12.4% for Social Security plus 2.9% for Medicare - that self-employed people pay to fund Social Security and Medicare. It applies to 92.35% of your net earnings from self-employment and is computed on Schedule SE (Form 1040). You owe it once net earnings reach $400 for the year, and you deduct half against income tax. Estimate yours with our self-employment tax calculator.
Quick Answer
- Rate
- 15.3% total - 12.4% Social Security + 2.9% Medicare
- Applies to
- 92.35% of net earnings from self-employment
- Filing threshold
- Net earnings of $400 or more for the year
- Social Security cap
- $176,100 wage base for 2025 (adjusted annually); Medicare has no cap
- Additional Medicare Tax
- Extra 0.9% above $250,000 / $125,000 / $200,000 by filing status
- Deduction
- Half of SE tax deducted on Schedule 1 (above-the-line)
- Form
- Schedule SE (Form 1040), filed with your Form 1040
What Self-Employment Tax Is
Self-employment tax is the Social Security and Medicare tax paid by people who work for themselves. When you are an employee, your employer withholds Social Security and Medicare tax from your pay and matches it. When you are self-employed, no employer does that, so you pay both the employee and employer shares yourself - that combined payment is self-employment tax. Per the IRS, "the self-employment tax rate is 15.3%," consisting of "12.4% for social security" and "2.9% for Medicare."
Self-employment tax is separate from income tax. It applies to net earnings from a business you run as a sole proprietor, an independent contractor, a partner in a partnership, or the owner of a single-member LLC. It is reported on Schedule SE, which attaches to your Form 1040. If you report a business on Schedule C, its net profit is the starting point for this tax. Income tax and self-employment tax are figured on the same return but stack independently: a low-bracket owner can owe little income tax yet still owe the full 15.3% on their net earnings, which surprises many first-year filers.
Why Self-Employment Tax Exists (Legal Basis)
Self-employment tax exists because 26 U.S. Code § 1401 imposes a tax "on the self-employment income of every individual" - a Social Security portion under § 1401(a) and a Medicare portion under § 1401(b). It parallels the payroll taxes an employer and employee split under the Federal Insurance Contributions Act, ensuring the self-employed contribute to and earn credit toward Social Security and Medicare.
The base for the tax, "net earnings from self-employment," is defined in 26 U.S. Code § 1402. That definition is why the tax runs on business net earnings rather than gross receipts, and why the 92.35% adjustment and the $400 floor below exist. Together, §§ 1401 and 1402 turn a self-employed person's profit into a contribution to the same two programs employees fund through withholding.
The Self-Employment Tax Rate
The self-employment tax rate is 15.3%, and it has two parts, per the IRS. The 12.4% Social Security portion funds old-age, survivors, and disability insurance and applies only up to an annual wage base. The 2.9% Medicare portion funds hospital insurance and applies to all net earnings with no ceiling.
| Component | Rate | Applies to |
|---|---|---|
| Social Security | 12.4% | Net earnings up to the wage base ($176,100 for 2025) |
| Medicare | 2.9% | All net earnings - no cap |
| Combined | 15.3% | Net earnings up to the wage base |
| Additional Medicare | +0.9% | Earnings above the filing-status threshold |
These are the same combined rates that employees and employers pay together (7.65% each), but the self-employed pay the full 15.3% because they are both parties. The deduction for half the tax, covered below, restores parity by treating the employer-equivalent half as a business cost.
How to Calculate Self-Employment Tax
Self-employment tax is not charged on your full profit - it is charged on 92.35% of it. On Schedule SE, you multiply net profit by 0.9235 to reach "net earnings from self-employment," then apply the rates. The 92.35% factor removes the employer-equivalent share from the base, mirroring how an employee's Social Security wages exclude the employer's half. A worked example:
- Start with net profit. Say Schedule C line 31 shows $60,000.
- Multiply by 92.35%. $60,000 × 0.9235 = $55,410 in net earnings from self-employment.
- Apply 15.3%. Because $55,410 is below the 2025 wage base of $176,100, the full amount is taxed at 15.3%: $55,410 × 0.153 = about $8,478.
- Deduct half. You deduct roughly $4,239 on Schedule 1, reducing income tax.
If net earnings exceed the wage base, you apply 12.4% only up to the cap and 2.9% to everything, then add any Additional Medicare Tax. Our self-employment tax calculator runs these steps automatically.
The Social Security Wage Base Cap
The 12.4% Social Security portion stops at an annual wage base that the Social Security Administration adjusts each year. Per the Instructions for Schedule SE, "for 2025, the maximum amount of self-employment income subject to social security tax is $176,100." Net earnings above that figure are not subject to the 12.4% portion, though they remain subject to the 2.9% Medicare portion.
Because the cap changes annually, always confirm the current year's figure on the IRS Schedule SE instructions before computing. If you also earned W-2 wages during the year, those wages count first against the same wage base, which can reduce the self-employment income still subject to the 12.4% portion. Schedule SE accounts for that coordination.
Additional Medicare Tax
High earners owe an extra 0.9% Additional Medicare Tax on top of the 2.9% Medicare portion. Per the IRS, the 0.9% applies to wages and self-employment income above a threshold set by filing status: $250,000 for married filing jointly, $125,000 for married filing separately, and $200,000 for single, head of household, and qualifying surviving spouse filers.
Unlike the base Medicare tax, the Additional Medicare Tax has no employer-equivalent match, so the self-employed pay the full 0.9% on the excess. It is computed on Form 8959 and carried to your Form 1040. The thresholds are not indexed for inflation, so they stay fixed year to year.
The Deduction for Half of SE Tax
You can deduct half of your self-employment tax, which offsets some of the burden of paying both shares. Per the IRS, a self-employed person deducts "the employer-equivalent portion of your self-employment tax in figuring your adjusted gross income." The deduction is authorized by 26 U.S. Code § 164(f).
This is an above-the-line adjustment on Schedule 1 (Form 1040), so you claim it whether or not you itemize. It reduces your income tax, not your self-employment tax - you still pay the full 15.3%, but your taxable income drops by half of it. In the $60,000 example above, that is roughly a $4,239 reduction in adjusted gross income.
Who Must Pay and When
You must file Schedule SE and pay self-employment tax once your net earnings from self-employment reach $400 for the year, per the Instructions for Schedule SE; church employees have a separate $108.28 threshold. This applies to sole proprietors, independent contractors, partners, and single-member-LLC owners alike - forming a default LLC does not change it, because the entity is disregarded for tax.
Because no employer withholds it, self-employment tax is paid during the year through quarterly estimated taxes on Form 1040-ES, then reconciled on your return. Owners who want to reduce the tax often study an S-corporation election via Form 2553, which splits profit into wages and distributions so that only the wages carry Social Security and Medicare tax - see LLC vs. S-corp tax for the math.
Who Is Exempt and Special Situations
Not every dollar of business-related income carries self-employment tax. Per IRS Topic No. 554, if your net earnings from self-employment are under $400 for the year, you owe no self-employment tax, though you may still owe income tax. Several categories are treated specially:
- General partners pay self-employment tax on their distributive share of partnership trade-or-business income, reported from their Form 1065 Schedule K-1.
- Limited partners generally do not owe it on their distributive share, only on guaranteed payments for services, under § 1402(a)(13).
- S corporation shareholders pay no self-employment tax on pass-through profit; instead they take W-2 wages that carry ordinary payroll tax.
- Rental income and most investment income are excluded from net earnings from self-employment under § 1402(a).
- Church employees use a separate $108.28 threshold rather than the $400 floor.
- Statutory employees whose Form W-2 has box 13 checked report on Schedule C but do not pay self-employment tax on those wages, because Social Security and Medicare tax was already withheld.
Because sole proprietors and partners have no employer withholding it, self-employment tax is paid during the year through estimated taxes on Form 1040-ES, then reconciled on Schedule SE with the annual return. Understanding which income is and is not "net earnings from self-employment" is what separates a correct Schedule SE from an overpayment.
Related Guides
- Self-employment tax calculator - estimate your 15.3% in seconds.
- Schedule C - where the net profit that feeds this tax is reported.
- Single-member LLC - why an LLC alone does not cut the tax.
- S-corp vs. LLC - the structure that can reduce SE tax.
- LLC vs. S-corp tax - the wage-versus-distribution math.
- Form 2553 explained - the election that changes the tax.
- Quarterly estimated taxes - how you pay SE tax during the year.
- How to file business taxes - filing Schedule SE with your return.
- When are business taxes due? - the Form 1040 deadline.
- Business tax hub - all schedules and returns.
Frequently Asked Questions
What is the self-employment tax rate?
The self-employment tax rate is 15.3% - 12.4% for Social Security and 2.9% for Medicare - per the IRS. It applies to 92.35% of net earnings. The 12.4% portion stops at an annual wage base; the 2.9% Medicare portion has no cap.
At what income do I have to pay self-employment tax?
You must file Schedule SE and pay self-employment tax once net earnings reach $400 for the year, per the IRS. Church employees have a separate $108.28 threshold. Below $400, no SE tax is due, though income tax may still apply.
How do I calculate self-employment tax?
Multiply net profit by 92.35% to get net earnings, then multiply that by 15.3% up to the Social Security wage base and by 2.9% above it. Schedule SE walks the computation; you then deduct half. Our calculator does it automatically.
Can I deduct self-employment tax?
Yes. You deduct the employer-equivalent portion - one-half of your self-employment tax - as an above-the-line adjustment on Schedule 1, reducing adjusted gross income. It reduces income tax, not the self-employment tax itself.
Does forming an LLC reduce self-employment tax?
No. A single-member LLC owner pays the same 15.3% as a sole proprietor, because a default LLC is disregarded. Reducing SE tax is why some owners elect S-corporation status with Form 2553.
What is the Additional Medicare Tax?
An extra 0.9% on wages and self-employment income above a threshold set by filing status - $250,000 married filing jointly, $125,000 married filing separately, and $200,000 for others. It is computed on Form 8959 and has no employer match.
Sources
- IRS - Self-Employment Tax (Social Security and Medicare Taxes) (15.3% rate, 12.4% + 2.9%, $400 threshold, one-half deduction).
- IRS - About Schedule SE (Form 1040), Self-Employment Tax.
- IRS - Instructions for Schedule SE ($176,100 wage base for 2025; 92.35% net-earnings computation; $400 and $108.28 thresholds).
- IRS - Questions and Answers for the Additional Medicare Tax (0.9%; $250,000 / $125,000 / $200,000 thresholds).
- IRS - About Form 8959, Additional Medicare Tax.
- IRS - About Schedule 1 (Form 1040) (above-the-line deduction for half of SE tax).
- IRS - Self-Employed Individuals Tax Center.
- IRS - Topic No. 554, Self-Employment Tax ($400 floor; who owes).
- IRS - Estimated Taxes (paying SE tax during the year on Form 1040-ES).
- Cornell LII - 26 U.S. Code § 1401, Rate of tax (12.4% Social Security, 2.9% Medicare).
- Cornell LII - 26 U.S. Code § 1402, Definitions (net earnings from self-employment).
- Cornell LII - 26 U.S. Code § 164(f), Deduction for one-half of self-employment taxes.
LegalGlass provides general information for educational purposes and is not a law firm or a substitute for advice from a licensed attorney or tax professional. This page is information, not advice. Tax rates, wage bases, and thresholds change; verify current figures with the IRS before acting.