Guide · 2026 rules
Self-employment tax: what it is and the legal way to pay less
If you work for yourself, you pay Social Security and Medicare tax on your own earnings, both the employer’s share and the employee’s. That is self-employment tax. This page explains how it is figured, which common deductions do not lower it, and the ways that do.
In short
- Self-employment tax is 15.3%: 12.4% for Social Security and 2.9% for Medicare.
- It applies to 92.35% of your net profit. The Social Security part stops at $184,500 of earnings in 2026.
- Retirement contributions and the self-employed health insurance deduction lower your income tax, not your self-employment tax.
- Two things lower it: real business expenses, and an S election that moves part of your profit out of payroll tax.
What self-employment tax is
An employee and an employer each pay Social Security and Medicare tax on wages. When you work for yourself, you are both, so you pay both shares. The total rate is 15.3%: 12.4% for Social Security and 2.9% for Medicare.
You owe it as a sole proprietor or as the only owner of an LLC that has not elected corporate treatment. If your net earnings from self-employment are under $400, you owe none.
How it is figured
- Start with your net profit. Schedule SE starts from your net profit on Schedule C: what the business earned, minus its expenses.
- Take 92.35% of it. This takes out the employer’s half of the tax first (100% minus half of 15.3%), the same way an employee’s wages never include the employer’s share.
- Apply 15.3%. The 12.4% Social Security part stops once your earnings reach $184,500 in 2026, counting any wages from a job. The 2.9% Medicare part has no cap.
- Watch for the Additional Medicare Tax. Above $200,000 of earnings (single) or $250,000 (married filing jointly), another 0.9% applies.
Here is what that comes to at a few levels of profit, for a single filer with no other wages, from the calculator. The share stays the same until earnings pass the Social Security cap, then falls:
| Net profit | Self-employment tax | Share of profit |
|---|---|---|
| $40,000 | $5,652 | 14.1% |
| $80,000 | $11,304 | 14.1% |
| $120,000 | $16,955 | 14.1% |
| $200,000 | $28,234 | 14.1% |
| $300,000 | $31,606 | 10.5% |
Half of the tax is deductible when you figure your income tax. That deduction lowers your income tax only. It does not lower the self-employment tax itself.
What does not lower it
Several deductions that self-employed people take are on Schedule 1 of your return, not on Schedule C. Because self-employment tax starts from Schedule C profit, those deductions lower your income tax but leave the self-employment tax where it was:
- Your own retirement contributions. As a sole proprietor, you deduct contributions you make to a plan for yourself on Schedule 1, not as a business expense.
- The self-employed health insurance deduction. You can’t subtract it when figuring net earnings for self-employment tax.
- The deduction for half of the tax. It is an income tax deduction only.
What does lower it
Real business expenses. Every ordinary and necessary business expense lowers your Schedule C profit, and so the tax. Keeping full records of them is the simplest way to make sure the tax is figured on your true profit, and no more.
An S election. This is the structural change. After the election, you pay yourself a salary through payroll, and Social Security and Medicare apply to that salary at the same 15.3% in total, split between you and the business. The profit left after your salary can come to you as a distribution, which carries no Social Security or Medicare tax. The tax does not disappear. It applies to a smaller amount.
The salary has to be reasonable for your work, and the election adds costs: payroll, a second tax return and, in some states, extra taxes. So it pays only above a certain profit. What is an S corp? explains the trade, and How to pay yourself shows how the salary changes the saving.
Paying it during the year
No one withholds self-employment tax from your earnings. The IRS expects you to pay as you go, through estimated tax payments, if you expect to owe $1,000 or more when you file. The year has four payment periods, and paying at least 90% of this year’s tax, or 100% of last year’s, whichever is smaller, generally avoids a penalty.
Sources
Sources: 16 official pages
- IRS, Self-employment tax (Social Security and Medicare taxes) page
- Schedule SE (Form 1040) 2025, line 4a
- IRS Publication 15 (2026), What’s New
- Instructions for Schedule SE (2025), What’s New
- IRS, Questions and answers for the Additional Medicare Tax
- SSA Office of the Chief Actuary, Contribution and benefit base (cbb.html), table 1937-2027 (read live in the desktop Chrome browser 2026-10-24; also matches the archive.org snapshot of 2026-10-20)
- Instructions for Schedule SE (2026), early-release DRAFT (Aug 5, 2026), What’s New
- Schedule SE (Form 1040) 2026, early-release DRAFT, line 4a
- 26 U.S.C. 1401(a) (U.S. Code, 2024 ed., govinfo)
- 26 U.S.C. 1402(a)(12) (source of the 92.35% factor: 1 minus half of 15.3%)
- Schedule SE (Form 1040) 2025, line 2
- Instructions for Schedule SE (2025)
- IRS Publication 334, Tax Guide for Small Business (for 2025 returns)
- Instructions for Form 7206 (2025), Effect on self-employment tax
- IRS, Sole proprietorships (page last reviewed 28-Jun-2026)
- IRS, Estimated taxes (page last reviewed 25-Sep-2026)
Every figure was read on an official page and checked a second time. Checked October 24, 2026. How we check facts.
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