Self-Employment Tax Explained: How It Is Figured

When you’re an employee, Social Security and Medicare tax is split: half comes out of your paycheck and your employer pays the other half. When you work for yourself, you’re both the employee and the employer, so you pay both halves. That’s self-employment tax, and for many freelancers and sole proprietors it’s a bigger bill than income tax.

This guide explains how it’s figured for tax year 2026, step by step, with worked examples. The figures come from the IRS’s self-employment tax page, Schedule SE and Topic 751.

Who pays it

You generally pay self-employment tax if your net earnings from self-employment are $400 or more for the tax year. You figure it on Schedule SE and attach it to your Form 1040.

Net earnings here means profit, not sales. For a sole proprietor, it starts with the net profit on Schedule C (line 31 on the 2025 form). If you have more than one business, the profits and losses are combined. Rental income reported on Schedule E is generally not subject to self-employment tax, though there are exceptions, such as when you provide substantial services to guests; ask a tax professional if that might apply to you.

The rate: 15.3%

Self-employment tax is two taxes added together:

• 12.4% for Social Security.
• 2.9% for Medicare.

Together that’s 15.3%. It’s the same total an employee and employer pay between them on wages.

The 92.35% step

You don’t pay 15.3% on your whole profit. Schedule SE first multiplies your net profit by 92.35% (line 4a). This step reflects the fact that an employer’s half of the tax isn’t part of an employee’s wages, so the self-employed get a matching reduction. The result is your net earnings from self-employment, and the 15.3% applies to that.

The Social Security wage base

The 12.4% Social Security part only applies up to a yearly limit, called the wage base. For 2026 it’s $184,500 (it was $176,100 for 2025), according to Topic 751. Above that, you stop paying the Social Security part.

The limit is shared with any wages you earn as an employee. If you have a job that already paid Social Security tax on part of the wage base, Schedule SE takes that into account, and less of your business income is subject to the 12.4%.

The 2.9% Medicare part has no limit. It applies to all your net earnings.

The additional 0.9% Medicare tax

Higher earners pay an extra 0.9% Medicare tax on earnings above a threshold: $200,000 for single filers, $250,000 for married filing jointly and $125,000 for married filing separately. It applies to wages and self-employment income combined, and it’s figured on its own form rather than on Schedule SE. If you’re near those amounts, it’s worth having a tax professional run the numbers.

The deduction for half

Because an employer can deduct its half of the tax as a business expense, the self-employed get a similar break: you deduct half of your self-employment tax on Schedule 1 of Form 1040. This reduces your income tax, not your self-employment tax itself, and it isn’t an expense on Schedule C.

Worked example: a typical freelancer

Sam, a single freelance writer with no other job, has $80,000 of net profit on Schedule C for tax year 2026.

1. Net earnings: $80,000 times 92.35% is $73,880.
2. Social Security part: $73,880 is under the $184,500 wage base, so all of it is taxed at 12.4%: $9,161.12.
3. Medicare part: $73,880 times 2.9% is $2,142.52.
4. Self-employment tax: $9,161.12 plus $2,142.52 is $11,303.64.
5. Deduction for half: $5,651.82, on Schedule 1.

Sam’s self-employment tax is about 14% of profit, slightly less than 15.3% because of the 92.35% step. This is on top of income tax.

Worked example: above the wage base

Alex, a single consultant, has $220,000 of net profit for tax year 2026 and no wages.

1. Net earnings: $220,000 times 92.35% is $203,170.
2. Social Security part: only the first $184,500 is taxed at 12.4%: $22,878.
3. Medicare part: all $203,170 at 2.9%: $5,891.93.
4. Self-employment tax: $28,769.93.

Alex’s earnings are also above the $200,000 threshold for the additional 0.9% Medicare tax, which is figured separately on the amount over the threshold.

Why it matters through the year

Self-employment tax is part of what you owe in estimated tax, so it needs to be in your quarterly payments, not left for the spring. If you’re setting money aside each month, include it. Quarterly Estimated Taxes for the Self-Employed walks through the payment dates for tax year 2026 and a monthly set-aside.

A few practical points:

• Profit drives it. Every legitimate business expense you record lowers net profit, and with it both income tax and self-employment tax. Good records matter twice.
• A loss means none. If your business has a net loss, there’s no self-employment tax on it for that year.
• The tax is separate from income tax brackets. Even if your income tax is low, self-employment tax applies once net earnings reach $400.
• Paying it builds your Social Security record. Self-employment tax is how the self-employed earn credits toward Social Security and Medicare.

When to ask a professional

Self-employment tax is mechanical for a single sole proprietor with one business. It gets more involved when you have wages and self-employment income together, more than one business, a partnership, rental activity with services, or income near the additional Medicare threshold. A tax professional can also tell you whether a different business structure would change anything for you.

Where Kemback fits

Kemback doesn’t calculate self-employment tax or file Schedule SE; that’s for you or your preparer. Small Business, part of Kemback Business, keeps a sole proprietor’s books with each income and expense account mapped to its Schedule C line and gives a Schedule C summary for a tax year, which is where the net profit figure comes from. Deductions that lower that profit are tracked too: business mileage at the IRS standard rate onto line 9, and the simplified home office deduction onto line 30.

Rental Houses, for landlords, is on the same login. See the pricing page for both add-ons.

This post is general information, not tax advice. Tax rules change and depend on your situation; check with a qualified tax professional.

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This article is general information, not financial, tax or legal advice. For decisions about your situation, talk to a qualified professional.