Small business self-employment tax: Calculation and quarterly payments

Published Saturday 27 June 2026

Table of contents

• What is the self-employment tax rate?
• What is self-employment tax?
• How to calculate self-employment tax
• Deductions that reduce self-employment tax
• Can an S-corp election reduce self-employment tax?
• How to pay quarterly estimated taxes
• Make quarterly taxes easy with Xero
• FAQs on self-employment tax

Key takeaways

• The self-employment tax rate is 15.3%, and it covers Social Security and Medicare taxes. However, it's calculated on 92.35% of net earnings, which brings the effective rate to about 14.13%.
• The 12.4% Social Security tax applies to self-employment profit under a certain threshold, while the 2.9% Medicare tax applies to all self-employment profit with no cap.
• Self-employed taxpayers get an income tax deduction worth 50% of their self-employment tax plus possible deductions for qualified business income, health insurance premiums, and retirement account contributions.
• You must make quarterly estimated payments; tracking business income with accounting software helps you to calculate accurate payments.

What is the self-employment tax rate?

The self-employment tax rate is 15.3%. It applies to self-employment income earned as a contractor, freelancer, sole proprietor, or partner. However, SE tax is calculated on 92.35% of your net self-employment earnings, which effectively reduces the rate to about 14.13%.

The Social Security rate for self-employment tax is 12.4%, and as of 2026, it applies to self-employment earnings up to $184,500. According to the IRS, the rate has not changed since 1990 (except for a temporary reduction in 2011 and 2012), but the earnings threshold increases annually based on inflation.

The Medicare self-employment tax percentage is 2.9% and has been the same since 1986. It applies to all self-employment income, with no cap. If you earn over a certain threshold ($250,000 for married filing jointly taxpayers and $200,000 for single or head of household), you must pay an additional 0.9% on earnings over the threshold, but that applies whether you're self-employed or not.

What is self-employment tax?

Self-employment tax includes Medicare and Social Security taxes. If you have an employer, you pay half of these taxes, and your employer pays the other half. But self-employed taxpayers pay the full rate on their own.

For example, if a W-2 employee earns $1000, their employer withholds $62 in Social Security tax and $14.50 in Medicare tax from their pay. Then, the employer will make a matching payment of $76.50.

In contrast, if a self-employed person earns $1000, they pay the full $153 self-employed tax amount on their own.

You must pay self-employment taxes if you're a contractor or business owner who files taxes on a Schedule C or a partner who reports partnership income on their individual income tax return. If you own an LLC, you'll pay self-employment tax if you file as a sole prop or a partnership, but not if you're taxed as an S- or C-corp.

Want to learn more? The IRS has more details on Social Security and Medicare taxes for the self-employed.

How to calculate self-employment tax

You don't need a special self-employment tax calculator to estimate your self-employment tax, but you will need to work through a few calculations.

1. Calculate your business profits: that's business revenue minus deductible expenses.
2. Subtract depreciation: a portion of the cost of qualifying capital assets or the full amount if using Section 179 or accelerated depreciation.
3. Make adjustments: such as adding back in non-deductible expenses from your accounting records, such as 50% of certain meals or non-deductible interest, tax, or penalties.
4. Multiply your net earnings by 92.35%: the IRS only applies self-employment tax to 92.35% of your net self-employment income, which accounts for the employer-equivalent portion of the tax.
5. Check if you're over the Social Security threshold: if so, multiply all earnings under the threshold by 12.4%, multiply all earnings by 2.9%, and add those numbers together.
6. Multiply all earnings by 15.3%: if you're not over the Social Security earnings threshold, multiply your adjusted taxable business income by 15.3%.

Keep in mind that this only calculates your self-employment tax. You may also have to pay income tax on the federal and state level. Self-employed tax brackets for income are the same as they are for any other taxpayer, and they vary based on your filing status and income level.

Be aware that you always calculate self-employment tax on profits. Even if you didn't "pay yourself" and all of the profits are still in the business bank account or wrapped up in business assets, you still must report the income and pay tax accordingly.

When you file your taxes, you'll calculate the self-employment tax due using Schedule SE, which is attached to your individual income tax return. Learn more about Schedule SE from the IRS.

Deductions that reduce self-employment tax

Any deductions that reduce your self-employment income reduce your self-employment tax.

Quick explanation: if you have $100,000 in self-employment income and no deductions, you'll owe $15,300 in self-employment tax based on the 15.3% self-employment tax rate.

But if you have $100,000 in self-employment income and $60,000 in business deductions, you'll only owe $6120 in self-employment tax. The rate is the same, but in this case, it only applies to $40,000 of income rather than the full $100,000.

The IRS also allows self-employed people to claim additional deductions that reduce their taxable income. These deductions can lower your income tax due, but they don't affect your self-employment tax:

• Self-employment tax deduction: 50% of the self-employment tax due on your tax return
• Qualified business income (QBI) deduction: 20% of qualifying business income (after accounting for the self-employment tax deduction), subject to limits based on income and the value of the business
• Self-employed health insurance: deduction for health insurance premiums as long as they aren't received from a current or former employer
• Certain retirement account contributions: up to 25% of self-employment income contributed to qualifying retirement plans, such as Solo 401(k)s, SEP IRAs, and SIMPLE IRAs

Can an S-corp election reduce self-employment tax?

If you're looking for ways to lower your self-employment tax bill, electing S-corp status is worth considering. When your business is taxed as a sole proprietorship or partnership, all of your net business income is subject to self-employment tax. But with an S-corp election, you can split your income between a reasonable salary and shareholder distributions.

Only the salary portion is subject to Social Security and Medicare taxes. The remaining income, taken as distributions, isn't subject to self-employment tax. For example, if your business earns $150,000 and you pay yourself a reasonable salary of $80,000, you'd only owe payroll taxes on the $80,000 rather than the full $150,000.

There are trade-offs to keep in mind. You'll need to run payroll, file additional tax returns, and pay yourself a salary the IRS considers "reasonable" for the work you do. If the IRS determines your salary is too low, they can reclassify distributions as wages and assess back taxes and penalties. Talk to a tax professional to determine whether an S-corp election makes sense for your situation.

How to pay quarterly estimated taxes

Self-employed people who owe $1000 or more in federal tax, including self-employment and income taxes, should pay estimated quarterly taxes. Quarterly estimated tax payments are due on the following dates each year:

• April 15: for income earned January 1 through March 31
• June 15: for income earned April 1 through May 31
• September 15: for income earned June 1 through August 31
• January 15 of the following year: for income earned September 1 through December 31

You can make payments by:

• Mail: send 1040-ES to the IRS with a check, cashier's check, or money order.
• Online: pay online with a bank transfer, debit card, or credit card using DirectPay, EFTPS, or your IRS online account.
• App: use the IRS2Go mobile app and pay with a bank transfer, credit, or debit card.
• In-person: pay at a participating IRS Taxpayer Assistance Center (TAC) or in cash at a participating retailer such as Dollar General or 711.

If you don't pay enough quarterly, the IRS will assess a penalty based on the amount of your underpayment. However, the penalty doesn't apply if you pay the higher of 90% of the current year's tax liability or 100% of the previous year's liability (110% if your adjusted gross income is over $150,000 for a married couple filing jointly or $75,000 for all single filers).

The IRS has more info on estimated taxes and how to make payments.

Make quarterly taxes easy with Xero

Quarterly taxes can get complicated, but Xero makes it easy.

Taxpayers often base quarterly payments on what they owed the previous year, but that approach can be problematic. If you underpay during the year, you'll end up with an unexpected bill at tax time. If you overpay, you'll get a refund, but that wraps up money you could be using in your business.

Instead, use Xero to track your business profits in real-time. When estimated payments are due, find your quarterly profits by running a profit and loss statement. Then, plug the numbers into IRS Form 1040-ES to figure out how much to pay. Alternatively, ask an accountant to help you figure out how much to pay.

Want to try it yourself? Now's the perfect time. Get one month free.

FAQs on self-employment tax

Running your own business can be incredibly rewarding, but for a lot of people, taxes are the worst part. Here are some answers to common questions about self-employment tax:

Is self-employment tax always 15.3 percent?

Yes, the rate has been 15.3% since 1990, aside from a temporary reduction in 2011 and 2012. However, Social Security tax only applies to earnings up to a certain threshold. So when compared to your total income, your effective self-employment or independent contractor tax rate will be lower if your self-employment income exceeds that threshold.

Do self-employed pay 30 percent tax?

No, self-employed people pay different tax rates depending on their total income, filing status, number of dependents, and the credits or deductions they claim. However, many self-employed people set aside 25 to 35% of their income to help ensure they have ample funds to cover their tax liability. Your actual rate may be higher or lower than that range; consider consulting with a tax professional for guidance.

Do I owe self-employment tax if I have W-2 wages and a side job?

Possibly. You'll owe self-employment tax if your side job is self-employment, for example, running your own lawn care business or working as a contractor for a company like Uber or DoorDash. You won't owe self-employment tax if your side job is as a W-2 employee, for example, working part-time at the movie theater, a retail store, or a fast food restaurant.

Do states charge self-employment tax?

No, states do not charge self-employment tax. However, you'll need to pay state income tax on your self-employment income, unless you live in a state with no income tax.

What is the 20 percent self-employment deduction?

The 20-percent self-employment deduction refers to the qualified business income (QBI) deduction. Also called a Section 199A deduction, it allows business owners to claim 20% of their qualified pass-through business income as a deduction on their individual income tax returns. It's subject to limits based on the taxpayer's income, the type of business, the wages paid by the business, and the business's assets.