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By Jason Mercer · Updated May 31, 2026 · Figures verified 2026-05-31

Self-Employment Tax Explained (2026)

Self-employment (SE) tax is the Social Security and Medicare tax that self-employed people pay on their net profit. It is separate from and on top of federal income tax. For 2026 the combined rate is 15.3% — 12.4% for Social Security (applied to net earnings up to a wage base of $184,500) and 2.9% for Medicare (no cap, applied to all of it). It’s the single biggest reason 1099 income takes home less than the same gross at a W-2 job.

Why does this tax exist?

Every W-2 employee pays Social Security and Medicare (together called FICA), but they only see half of it on their pay stub. The other half is paid by the employer — out of the same compensation budget, just on a different line of the company’s books. Combined, the two halves are exactly 15.3%.

When you’re self-employed, there is no employer to pay the other half. You are the worker and the employer. The IRS doesn’t let you off the hook — they collect both halves from you, and they call the combined thing self-employment tax.

So SE tax isn’t a penalty on self-employed people. It’s the same FICA every working American owes — you’re just paying both sides of it yourself, which is why it feels so much heavier than it did when you were on W-2.

The two halves of SE tax in 2026

A few things to internalize:

• The 12.4% Social Security portion has a ceiling. Once your net earnings cross the wage base ($184,500 for 2026), you stop paying it. High earners’ SE-tax marginal rate effectively drops from 15.3% to 2.9% past that threshold.
• The 2.9% Medicare portion has no ceiling. Every dollar of net earnings pays Medicare, all the way up.
• High earners also owe an extra 0.9% Additional Medicare tax above filing-status thresholds (more on that below).

The 92.35% rule (and why your “net earnings” aren’t the same as your net profit)

This is the subtle step most freelancers miss when they try to calculate SE tax on the back of an envelope.

SE tax does not apply to your full net profit. It applies to 92.35% of it. The number $0.9235× is sometimes called “net earnings from self-employment.”

Why 92.35%? It’s the IRS’s algebraic way of correcting for the fact that an employee’s half of FICA isn’t included in their wages on the employer side. To put a self-employed person on equal footing with a W-2 employee earning the same gross, the IRS deducts 7.65% of net profit before applying the 15.3% rate. The deduction approximates the “employer’s half” your business would have paid in pre-FICA dollars if it were a different entity from you.

You don’t need to understand the math to use it. You just need to remember:

SE tax = (92.35% × net profit) × 15.3% — up to the Social Security wage base, with the 2.9% Medicare portion continuing above it.

There is also a floor: if your net earnings from self-employment are below $400, you owe no SE tax at all. That threshold has been $400 since 1990; it does not adjust for inflation.

A worked example

Let’s say your 2026 numbers look like this:

• Gross self-employment income: $80,000
• Business expenses: $15,000
• Net profit: $65,000

Step 1 — apply the 92.35% rule:

Net earnings from SE = $65,000 × 0.9235 = $60,028

Step 2 — apply the rate. Because $60,028 is well under the $184,500 wage base, the full 15.3% combined rate applies:

SE tax = $60,028 × 15.3% ≈ $9,184

That’s your SE-tax line on Schedule SE. It’s separate from any federal income tax you’ll also owe on the same profit.

What about somebody with much higher net profit? Say net profit of $250,000:

• Net earnings = $250,000 × 0.9235 = $230,875
• Social Security portion: capped at the wage base. 12.4% × $184,500 = $22,878
• Medicare portion: 2.9% × $230,875 ≈ $6,695
• Total SE tax: about $29,573

Notice that the marginal SE-tax rate on the dollar past the wage base is just 2.9%, not 15.3%. This is why “1099 tax rate” varies so much across income ranges — the SE portion gets cheaper at the top, even as income tax brackets get more expensive.

The half-SE-tax deduction

Here’s a small piece of good news. Because the employer’s half of FICA would have been a business expense if you had an employer, the IRS lets you deduct half of your SE tax against your income tax (not against SE tax itself).

It works like this:

1. You compute SE tax in full and pay it.
2. You also reduce your Adjusted Gross Income (AGI) by half of that SE tax. This is an “above-the-line” deduction — it doesn’t depend on itemizing.
3. Your income tax is then calculated on the smaller AGI.

For the $65,000-net-profit example above, SE tax was about $9,184, so your AGI gets reduced by about $4,592 before income tax is computed. At a 12% federal bracket, that saves you another ~$551 in income tax. Not a fortune — but it’s automatic, and the calculator on the home page applies it for you.

The deduction does not reduce your SE tax itself. The IRS still wants the full 15.3% on your net earnings.

Additional Medicare Tax (for higher earners)

On top of regular SE tax, an 0.9% Additional Medicare Tax applies to wages + SE earnings above a threshold that depends on filing status:

A few things to know:

• It applies to combined wages + SE earnings, not each separately. A freelancer with $150,000 of net earnings plus $80,000 of W-2 wages crosses the single threshold at $200,000.
• It is not offset by the half-SE-tax deduction.
• For self-employed people it’s paid as part of your regular tax bill; for employees it’s typically withheld by the employer on wages above the threshold.

If you’re nowhere near these numbers, you can safely ignore this section. If you’re approaching them, the calculator on the home page accounts for it automatically.

Common misunderstandings

• “SE tax is on top of the highest income tax rate.” No. SE tax is on top of income tax, but they’re computed separately. SE tax goes on Schedule SE; income tax goes on Form 1040.
• “I can deduct SE tax to reduce SE tax.” No. You can deduct half of SE tax against income tax. SE tax itself is owed in full.
• “I’m under $400 so I owe nothing.” You owe no SE tax under that floor. You can still owe income tax on the same income.
• “My LLC means I don’t pay SE tax.” A single-member LLC is disregarded for federal tax — you still pay SE tax on its profit. Only an S-corp election separates “reasonable salary” (payroll taxes) from “distributions” (no SE tax). See the eventual LLC vs. sole-prop guide for details.

Sources

• IRS — Self-Employment Tax (Social Security and Medicare Taxes)
• IRS — Schedule SE (Form 1040) and instructions
• IRS — Additional Medicare Tax FAQ