Self-Employment Tax: What Is It & How To Calculate It

If you own your business or work as a sole proprietor, you are responsible for paying your self-employment tax, sometimes called SE tax, and maintaining proof of your income and expenses.

At year-end, you'll also need to know which tax form requirements apply to you and how to calculate your tax obligations to avoid penalties.

Here's what you need to know to understand the self-employment tax.

What Is Self-Employment (SE) Tax?

The self-employment tax is the amount self-employed individuals pay to the government to meet Social Security and Medicare obligations. While traditional employers pay a portion of these taxes on behalf of their employees, the same cannot be said for sole proprietors, freelancers, contractors, partners in a trade or business, and other self-employed individuals.

Self-employed workers generally pay both the employee and employer portions of Social Security and Medicare taxes. Together, these payments are called self-employment tax. Anyone meeting the criteria for self-employment and earning $400 or more in net earnings during the year typically must pay SE tax to the federal government.

What Is the Self-Employment Tax Rate?

The self-employment tax rate is 15.3%. This includes 12.4% for Social Security and 2.9% for Medicare.

For 2026, the Social Security portion applies to the first $184,500 of combined wages (the Social Security wage base) and net earnings from self-employment. Medicare tax applies to all covered earnings because it does not have an annual wage limit.

An additional 0.9% Medicare tax may apply when combined wages, compensation, and self-employment income exceed:

• $250,000 for married couples filing jointly
• $125,000 for married individuals filing separately
• $200,000 for all other filers

These Additional Medicare Tax thresholds remain unchanged for 2026.

How Does Self-Employment Tax Work?

SE tax works differently when you’re an independent contractor vs. employee. Businesses with paid employees use a payroll process to withhold and remit taxes to the government, but self-employed individuals must complete these steps on their own. Estimated taxes should be paid throughout the year, with a final calculation when you file your annual tax return.

As a self-employed individual, you must calculate income tax and self-employment tax using the correct tax forms:

• Income Tax: When completing federal Form 1040, use Schedule C to calculate taxable income.
• Self-Employment Tax: Use Schedule SE to calculate self-employment tax separately. You can often deduct 50% of your total self-employment tax owed as a business deduction, which may lower your overall tax liability.

Why Do You Pay Self-Employment Tax?

Because self-employed individuals do not pay Federal Insurance Contributions Act (FICA) taxes, the self-employment tax was created in 1951 to help them contribute to Social Security and, starting in 1966, Medicare.

Essentially, the SE tax combines the employer and employee shares of FICA and applies them to net earnings from self-employment.

When Do You Have To Pay Self-Employment Taxes?

The SE tax applies if net earnings from self-employment are $400 or more. Net earnings, which are essentially profits, can result from self-employment as a sole proprietor, independent contractor, general partner, or limited liability company (LLC) member. However, some exceptions apply, which we'll address later.

Limited partners are not subject to self-employment tax except to the extent they receive guaranteed payments for services rendered to or on behalf of the partnership.

For spouses filing jointly, each must complete a separate Schedule SE if that spouse has net earnings from self-employment. Spouses who co-own a business and both materially participate in it can elect to treat it as a joint venture instead of a partnership. For SE purposes, each reports their share of the business’s net earnings. For spouses in community property states, only the spouse who participates in the business reports the business's net earnings. If both participate, each pays SE tax on their distributive share.

Usually, wages received by employees are exempt from self-employment tax. Instead, they are subject to FICA. This is true even if they are statutory employees who can file Schedule C to report their earnings and business-related expenses.

Special Rules for LLC Members

Are LLC members treated like general partners subject to SE tax, or are limited partners exempt from SE tax?

According to the IRS, certain LLC members who are active in the day-to-day operations of their businesses may be viewed as self-employed and would then calculate SE tax in the same way as general partners.

IRS stipulations regarding the distributive share of business income for an LLC member who is merely an investor are less clear about the payment of SE tax. If you hold the status of an LLC member in a small business, you should consult a tax expert to determine if you must pay self-employment tax related to your earnings.

Optional Self-Employment Tax

Self-employed individuals who earn income below a set amount can elect to pay self-employment tax to accrue Social Security and Medicare credits. There is an optional method for self-employed farmers and another optional method for other self-employed individuals.

What Is the Difference Between Income Tax and Self-Employment Tax?

Income tax is the amount you pay the government based on your annual income from all applicable sources, including self-employed earnings.

Self-employment tax covers Social Security and Medicare taxes that employers and employees typically pay through payroll. Because self-employed individuals do not have an employer withholding these amounts, they must calculate and pay the tax themselves.

Self-employed individuals may also be required to remit estimated quarterly payments to cover both income tax and self-employment tax.

How To Calculate Self-Employment Tax When Filing Your 1040

You’ll include Schedule SE with your annual Form 1040 to calculate self-employment tax on your net earnings. More specifically, net earnings subject to SE tax include the following amounts:

• Schedule C Filers: Independent contractors, gig workers, sole proprietors, and single-member LLCs generally use the net profit or loss reported on line 31 of Schedule C.
• Schedule F Filers: Farmers can use the net farm profit or loss reported on line 34 of Schedule F.
• Form 1065 Filers: Partners and members of LLCs with two or more members generally use the amount reported in box 14, code A, of Schedule K-1.

If you have more than one business from which you receive net earnings, you’ll combine the amounts on Schedule SE. If there is a loss in one business, it reduces the net earnings from another business subject to SE tax.

You can calculate the self-employment tax once you have totaled your net earnings:

1. Calculate Taxable Net Earnings: Enter your net earnings on Schedule SE and multiply this amount by 92.35% to arrive at the total taxable amount. The remaining 7.65% of net earnings is not subject to tax.
2. Apply the 15.3% Rate Up To the Social Security Limit: If your taxable earnings are equal to or less than the $184,500 wage base, multiply the entire amount by 15.3%.
3. Calculate Medicare Tax Above the Wage Base: Multiply taxable earnings over $184,500 by the Medicare rate of 2.9%.
4. Calculate Any Additional Medicare Tax: Multiply qualifying earnings above the threshold for your filing status by 0.9%.

How Much Is Self-Employment Tax Going To Cost?

A single self-employed individual earning $300,000 in net profit, with no W-2 wages, would calculate their tax as follows:

1. $300,000 x 92.35% = $277,050 taxable net earnings
2. $184,500 x 15.3% = $28,228.50 in Social Security and Medicare tax
3. $277,050 – $184,500 = $92,550 in Medicare-only earnings
4. $92,550 x 2.9% = $2,683.95 in Medicare-only tax
5. $277,050 – $200,000 = $77,050 subject to Additional Medicare Tax
6. $77,050 x 0.9% = $693.45 in Additional Medicare Tax

Add the three tax amounts: $28,228.50 + $2,683.95 + $693.45 = $31,605.90. The individual's combined self-employment tax and Additional Medicare Tax would be $31,605.90.

You can use tax software to calculate the amounts due or ask your tax preparer to assist with calculating and reviewing your year-end tax planning strategies. Self-employed individuals should consider self-employment tax when figuring quarterly estimated tax payments.

How To Pay Self-Employment Tax

Understanding how to file self-employment taxes correctly can save you from costly penalties and ensure you're meeting your tax obligations as a self-employed professional.

The process involves calculating your net earnings from self-employment, determining your expected tax liability, and making payments according to IRS deadlines throughout the year.

1. Calculate your net earnings using Schedule C. Complete the form to report your business income and expenses. The resulting net profit is the foundation for your self-employment tax calculation.
2. Know your taxpayer identification information. You'll need either your Social Security number or Individual Taxpayer Identification Number (ITIN) to file your return and make payments.
3. Complete Schedule SE. Use your net earnings from Schedule C to calculate your Social Security and Medicare self-employment tax liability.
4. Make quarterly estimated tax payments. Use Form 1040-ES to calculate payments for your estimated self-employment tax. The 2026 payment deadlines are April 15, 2026, June 15, 2026, Sept. 15, 2026, and Jan. 15, 2027.
5. File your annual return by the deadline. Submit your completed tax return by April 15 (or Oct. 15 if you file an extension) to reconcile your estimated payments with your actual tax liability.
6. Pay any remaining balance or claim your refund. If your estimated payments fell short, pay the difference by the original filing deadline to limit penalties and interest charges.

What Are the Tax Deductions for Self-Employed Individuals?

While you must calculate and pay self-employment tax when applicable to your net earnings, you may also be entitled to claim certain tax deductions that lower your tax liability. You can typically deduct the employer-equivalent portion of your self-employment tax from income on Form 1040.

For example, if you owe $3,000 in self-employment tax for the year, you can deduct $1,500, effectively reducing the taxable amount. Small business owners with pass-through income may also qualify for the qualified business income (QBI) deduction. Eligible taxpayers can deduct up to 20% of qualified business income, and you can claim it whether or not you itemize. Keep in mind that the QBI deduction lowers your taxable income for income tax purposes. It does not reduce the net earnings used to calculate your self-employment tax.

Other business expenses, such as advertising, insurance, and work-related travel, may be taken as self-employment tax deductions for federal filing purposes. For example, if you're a freelance graphic designer who spends $500 on design software, $200 on professional insurance, and $300 on client meetings, these $1,000 in legitimate business expenses can be deducted so you pay self-employment taxes on a smaller amount.

These deductions work by lowering your net profit on Schedule C, which directly impacts your self-employment tax calculation since the tax is based on your net earnings, not your gross income.

Required Self-Employed Tax Forms

When preparing your taxes, you may need to file some of the following forms along with your annual tax return.

• Form 1099-NEC: Businesses generally use this form to report nonemployee compensation. As of 2026, a business only has to issue this form for payments of $2,000 or more, up from $600. You must still report all taxable income even if you don't receive a 1099-NEC.
• Form 1099-MISC: If you receive certain types of income, such as rental payments or royalties, they may be reported to you on Form 1099-MISC. The same $2,000 reporting threshold applies for 2026.
• Form 1040: The annual federal tax return reports income from all applicable sources, including self-employment income. Self-employed individuals may also need to complete additional schedules.
• Schedule 1: This supplemental schedule reports certain types of additional income and adjustments to income. The deductible portion of your self-employment tax is reported here and carried to Form 1040.
• Schedule C: This schedule reports profit or loss from a business, including earnings and expenses related to self-employment.
• Schedule SE: Use this form to calculate self-employment tax.
• Form 8829: If you qualify for a home office deduction and use the actual-expense method, this form helps calculate the amount you can claim.

What Changed for Self-Employed Taxpayers in 2026?

Two recent federal tax changes affect self-employed individuals.

First, the One Big Beautiful Bill Act made the qualified business income (QBI) deduction permanent, so it no longer expires after 2025. Beginning in 2026, taxpayers with at least $1,000 in QBI from an active trade or business may also qualify for a new minimum deduction of $400. See the deductions section above for how the QBI deduction works.

Second, the law raised the 1099-NEC and 1099-MISC reporting threshold from $600 to $2,000 for payments made after 2025. This changes when a business must issue a form. It does not change your responsibility to report all taxable income.

What Are the Penalties of Not Paying For Self-Employment Tax?

Failing to pay your self-employment tax can result in significant penalties that compound over time. The IRS imposes several types of penalties:

• Failure-to-Pay Penalties: The IRS can charge 0.5% per month on unpaid taxes until the taxes are paid. If you set up an approved installment plan, the rate may drop to 0.25% per month.
• Failure-to-File Penalties: If you don’t file your tax return by the deadline, the IRS can charge 5% of the unpaid tax per month. This amount includes the failure-to-pay penalty if both occur during the same month.
• Interest Charges: Interest accrues daily on any outstanding federal self-employment tax balance.

IRS CP2000

If IRS records do not match what you reported on your tax return, you may receive an IRS CP2000 notice. This notice proposes adjustments to your self-employment tax amount and typically includes the additional taxes owed, plus penalties and interest calculated from the original due date.

While a CP2000 isn't technically an audit, ignoring it can lead to the IRS automatically assessing the additional taxes owed. This is a much more expensive and complicated way to resolve the issue than addressing the discrepancy promptly through the response process.