Self-employment tax
Learn how self-employment tax works, current rates, and how to calculate what you owe.
Published Wednesday 10 June 2026
Table of contents
Key takeaways
- Self-employment tax covers Social Security and Medicare contributions at a combined rate of 15.3%, and you're responsible for both the employee and employer portions when you work for yourself.
- You can deduct half of your self-employment tax on your federal income tax return, which lowers your overall tax bill even though it doesn't reduce the self-employment tax itself.
- If you expect to owe $1,000 or more in taxes for the year, you'll need to make quarterly estimated tax payments to avoid penalties from the Internal Revenue Service (IRS).
- Tracking your business expenses throughout the year and maximizing deductions on Schedule C can significantly reduce the net earnings your self-employment tax is based on.
What is self-employment tax?
Self-employment tax is a federal tax that funds your Social Security and Medicare contributions when you work for yourself. It's the self-employed equivalent of the Federal Insurance Contributions Act (FICA) taxes that traditional employees and their employers split.
When you're self-employed, you pay both the employee and employer portions yourself under the Self-Employment Contributions Act (SECA). In a traditional job, your employer covers half of FICA, but as a self-employed worker, the full amount falls on you.
The combined self-employment tax rate is 15.3%, broken down into 12.4% for Social Security and 2.9% for Medicare. For traditional employees, these costs are split evenly between the worker and employer, with each paying 7.65%. As a self-employed individual, you cover the full 15.3%.
You'll owe self-employment tax if your net earnings from self-employment reach $400 or more in a tax year. This threshold applies to your profit after business expenses, not your gross revenue.
Self-employment tax rates for 2026
Understanding the current tax rates helps you plan for the year ahead and avoid any surprises when tax time arrives. Here's how the self-employment tax breaks down for 2026.
The self-employment tax rate is 15.3%.
The total self-employment tax rate remains 15.3%. Of that, 12.4% goes toward Social Security and 2.9% goes toward Medicare. The Social Security portion applies only up to the 2026 wage base of $184,500, as set by the Social Security Administration (SSA). Any net earnings above that threshold are exempt from the Social Security portion but still subject to the 2.9% Medicare tax.
There's also an additional 0.9% Medicare surtax that applies to higher earners. This surtax kicks in when your earnings exceed $200,000 if you file as single, $250,000 if you're married filing jointly, or $125,000 if you're married filing separately.
Before calculating your tax, the IRS applies a 92.35% multiplier to your net self-employment earnings. This adjustment puts self-employed individuals on roughly equal footing with traditional employees, since employers don't pay FICA taxes on the employer's share of those contributions. In other words, you only pay self-employment tax on 92.35% of your net earnings, not the full amount.
How to calculate self-employment tax
Calculating your self-employment tax is straightforward once you know the steps. Here's how to work through it using a practical example based on $75,000 in net earnings.
1. Determine your net earnings from self-employment
Start by calculating your total self-employment income minus your allowable business expenses. This is the profit figure from your Schedule C. For this example, your net earnings are $75,000.
2. Apply the 92.35% multiplier
Multiply your net earnings by 92.35% (0.9235) to find your taxable self-employment income. This adjustment accounts for the employer-equivalent portion of your tax. In this case, $75,000 x 0.9235 = $69,262.50.
3. Calculate the Social Security portion
Multiply your taxable self-employment income by 12.4%. Since $69,262.50 is well below the 2026 Social Security wage base of $184,500, the full amount is subject to this tax. That gives you $69,262.50 x 0.124 = $8,588.55.
4. Calculate the Medicare portion
Multiply your taxable self-employment income by 2.9%. Unlike Social Security, there's no income cap on Medicare tax. For this example, $69,262.50 x 0.029 = $2,008.61.
5. Add both portions together
Your total self-employment tax is the sum of your Social Security and Medicare amounts. That's $8,588.55 + $2,008.61 = $10,597.16. This is the amount you'd report on Schedule SE and include on your Form 1040.
Self-employment tax deductions
While self-employment tax can feel like a hefty bill, several deductions can help reduce your overall tax burden. Knowing which deductions apply to you is key to keeping more of what you earn.
The most direct benefit is the 50% deduction of your self-employment tax. This deduction represents the employer-equivalent portion and is claimed on your Form 1040 as an adjustment to income. It lowers your adjusted gross income and therefore your income tax, though it doesn't reduce the self-employment tax itself.
The Qualified Business Income (QBI) deduction allows eligible self-employed individuals to deduct up to 20% of their qualified business income. This deduction reduces your federal income tax but does not reduce your self-employment tax. It's available to sole proprietors, partners, and S corporation shareholders who meet certain income thresholds.
Business expenses claimed on Schedule C directly reduce your net earnings, which in turn lowers your self-employment tax. Common deductions include home office expenses, health insurance premiums for yourself and your family, and retirement plan contributions through a Simplified Employee Pension Individual Retirement Account (SEP-IRA) or Solo 401(k). Every dollar you deduct on Schedule C reduces the income your self-employment tax is calculated on.
Who has to pay self-employment tax?
Self-employment tax applies to a broad range of workers beyond just full-time business owners. If you earn income outside of a traditional employer-employee relationship, you may be on the hook for this tax.
You're required to pay self-employment tax when your net earnings from self-employment are $400 or more in a tax year. This includes sole proprietors, freelancers, independent contractors, and gig economy workers. If you drive for a rideshare service, sell products online, or take on consulting projects on the side, that income counts toward the threshold.
General partners in a partnership also pay self-employment tax on their share of the partnership's income. Limited partners generally only pay self-employment tax on guaranteed payments they receive for services.
Side gig income is subject to self-employment tax even if you also hold a traditional W-2 job. Your employer handles FICA taxes on your wages, but any additional self-employment earnings above $400 require you to file Schedule SE and pay the tax separately. Church employees have a lower threshold of $108.28 in annual wages.
How to file and pay self-employment tax
Filing and paying self-employment tax involves a few specific forms and deadlines. Staying on top of these requirements helps you avoid penalties and interest charges.
You'll report your business income and expenses on Schedule C (Profit or Loss From Business), which attaches to your Form 1040. Your net profit from Schedule C flows into Schedule SE (Self-Employment Tax), where you calculate the actual tax amount. The resulting self-employment tax is then added to your Form 1040.
If you expect to owe $1,000 or more in total federal taxes for the year, the IRS requires you to make quarterly estimated tax payments using Form 1040-ES. These payments cover both your income tax and self-employment tax. The quarterly due dates for 2026 are April 15, June 15, September 15, and January 15 of the following year.
To avoid underpayment penalties, you can follow safe harbor rules. Pay at least 100% of your prior year's total tax liability, or at least 90% of your current year's tax. If your adjusted gross income exceeded $150,000 in the prior year, the safe harbor increases to 110% of last year's tax. Missing payments or underpaying can result in penalties and interest, so it's worth setting aside money each quarter.
How to reduce your self-employment tax
There are several legitimate strategies to lower the amount of self-employment tax you owe each year. With some planning, you can keep more of your hard-earned income.
One common approach is electing S corporation status for your business. As an S corp, you pay yourself a reasonable salary (which is subject to FICA taxes) and take remaining profits as distributions, which aren't subject to self-employment tax. This can result in meaningful savings, though the salary must be reasonable for your role and industry.
Maximizing your business deductions on Schedule C directly lowers the net earnings your self-employment tax is calculated on. Track every eligible expense, from office supplies and software subscriptions to mileage and professional development. The more you reduce your net profit, the less self-employment tax you'll owe.
Contributing to a retirement account like a SEP-IRA or Solo 401(k) provides a double benefit. Your contributions are tax-deductible, which lowers your income tax, and they help you build long-term savings. Keeping organized records throughout the year, rather than scrambling at tax time, ensures you don't miss any deductions you're entitled to.
Simplify your self-employment tax with Xero
Staying on top of self-employment tax is much easier when your financial records are organized from the start. Tracking income and expenses consistently throughout the year means fewer surprises when quarterly payments come due and a smoother experience at tax time.
Xero's accounting software helps you categorize business expenses, reconcile bank transactions, and keep your records in order so you're always prepared. With real-time visibility into your finances, you can make confident decisions about estimated payments and deductions. Try Xero today and get one month free.
FAQs on self-employment tax
Here are answers to frequently asked questions about self-employment tax.
What is the self-employment tax rate for 2026?
The combined rate is 15.3% for 2026, and it hasn't changed in over three decades. The rate has remained steady since 1990, though the Social Security wage base adjusts annually for inflation.
Can you deduct self-employment tax?
Yes, you claim this deduction on Schedule 1 (Form 1040), Line 15, as an adjustment to gross income. It's available whether you itemize deductions or take the standard deduction.
Do you have to pay self-employment tax on side gig income?
Yes, the $400 threshold applies to net earnings after expenses, not gross receipts. Platforms like Etsy, Uber, or Upwork typically report your earnings on Form 1099-NEC or 1099-K, but you're responsible for tracking expenses and calculating the net amount subject to self-employment tax.
What is the difference between self-employment tax and income tax?
Self-employment tax specifically funds Social Security and Medicare at a flat 15.3% rate, while income tax is a separate federal tax on your overall taxable income with rates that vary by bracket. Self-employed individuals pay both types of tax.
What happens if you don't pay self-employment tax?
Failing to pay self-employment tax can result in penalties and interest from the IRS, including underpayment penalties for missed quarterly estimates. In more serious cases, the IRS can place liens on your assets or pursue further collection actions.
Related terms
Explore these related terms to deepen your understanding of taxes and self-employment.
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Disclaimer
This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.