If you work for yourself, you pay both sides of FICA. W-2 employees split the tax with their employer, but sole proprietors, freelancers, and single-member LLC owners pay the full 15.3% self-employment (SE) tax on their own.
Who Owes Self-Employment Tax?
If your net SE earnings are $400 or more in the tax year, you must file Schedule SE and pay this tax. It applies to:
- Sole proprietors and single-member LLCs reporting income on Schedule C
- General partners receiving guaranteed payments (Schedule E, Part II)
- Farmers filing Schedule F
- Independent contractors and gig workers receiving Form 1099-NEC
Corporate employees pay 7.65% and their employer matches it. When you are self-employed, you pay both halves directly.
What Are the 2026 SE Tax Rates?
Under IRC Section 1401, the SE tax has two components:
- Social Security: 12.4% on net SE income up to the 2026 wage base of $184,500
- Medicare: 2.9% on all net SE income, with no cap
The combined rate is 15.3% up to the wage base and 2.9% on any income above it.
High earners also owe an additional 0.9% Additional Medicare Tax under IRC Section 3101(b)(2) on net SE income exceeding $200,000 for single filers or $250,000 for married filing jointly. This surcharge is not offset by any deduction.
How Is SE Tax Calculated?
The 15.3% rate does not apply to your gross income. It applies to your net SE income, which equals 92.35% of your gross SE profit. This adjustment mirrors how employers deduct their share of payroll taxes as a business expense before computing the employee's taxable compensation.
Example: $100,000 net profit from freelance consulting
- Net SE income: $100,000 x 0.9235 = $92,350
- SE tax: $92,350 x 0.153 = $14,130
- Above-the-line deduction: $14,130 x 0.50 = $7,065 (reduces AGI, not the SE tax itself)
You report SE tax on Schedule SE, attached to your Form 1040. If you expect to owe $1,000 or more, you should be making quarterly estimated payments on Form 1040-ES to avoid underpayment penalties.
What Is the 50% SE Tax Deduction?
The IRS allows you to deduct half of the SE tax you pay as an above-the-line deduction on Schedule 1, Line 15. You do not need to itemize to claim it. This deduction lowers your adjusted gross income (AGI) and therefore your income tax, though it does not reduce the SE tax liability itself.
In the example above, the $14,130 SE tax generates a $7,065 deduction. At a 22% income tax bracket, that deduction saves roughly $1,555 in income tax.
Three Ways to Reduce Your SE Tax Burden
Elect S-Corp Status
An S-Corp pays you a reasonable W-2 salary subject to payroll tax, and passes the remaining profit to you as shareholder distributions. Distributions are not subject to SE tax or payroll taxes. This restructuring can save several thousand dollars annually for higher earners. The IRS requires that the salary be reasonable compensation for your role, so it cannot be artificially low. See our guide on S-Corp vs. LLC taxes for a full comparison.
Maximize Deductible Business Expenses
SE tax is calculated on your net SE profit, not gross revenue. Every legitimate business deduction reduces your SE tax base. Home office, business vehicle expenses at the IRS standard rate, equipment under Section 179, professional services, and subscriptions all reduce what you owe. Keeping organized books throughout the year is the most effective way to capture every available deduction.
Contribute to a Solo 401(k) or SEP-IRA
Employer contributions to a Solo 401(k) or SEP-IRA are deducted as a business expense, reducing your net SE profit and therefore your SE tax base. For 2026, you can contribute up to 25% of net SE income to a SEP-IRA (max $70,000) or up to $24,500 as an employee deferral plus employer contributions to a Solo 401(k). These contributions significantly reduce both SE tax and income tax simultaneously.
Have questions about your self-employment tax situation? Contact TS CPA for a free consultation. We respond within the same day.