Self-Employment Tax

Self-employment tax is one of the most important taxes for freelancers, independent contractors, sole proprietors, and other business owners. If you work for yourself, you're generally responsible for paying both the employee and employer portions of Social Security and Medicare taxes.

Here's what you need to know about self-employment tax for the 2026 tax year (returns filed in 2027), including who must pay it, how it's calculated, and what deductions may help lower your tax bill.

What Is Self-Employment Tax?

Self-employment (SE) tax is a federal tax that funds Social Security and Medicare. Traditional employees share these taxes with their employers, but self-employed individuals pay both portions themselves.

The tax is calculated on your net earnings from self-employment, which generally means your business income minus allowable business expenses.

2026 Self-Employment Tax Rates

The overall self-employment tax rate remains 15.3%, consisting of:

12.4% Social Security tax
2.9% Medicare tax

These taxes are calculated separately because different income limits apply.

Social Security Tax

The Social Security portion applies only up to the annual Social Security wage base.

For 2026, the Social Security wage base is $184,500. The 12.4% Social Security tax applies only to net earnings up to this limit.

Medicare Tax

The 2.9% Medicare portion applies to all net earnings from self-employment.

Unlike Social Security tax, Medicare tax has no income cap.

Additional Medicare Tax

Some higher-income taxpayers must pay an additional 0.9% Medicare tax.

The additional tax applies when earnings exceed:

Filing Status	Additional Medicare Tax Begins At
Single	$200,000
Head of Household	$200,000
Qualifying Surviving Spouse	$200,000
Married Filing Jointly	$250,000
Married Filing Separately	$125,000

Who Must Pay Self-Employment Tax?

You generally must pay self-employment tax if:

Your net earnings from self-employment are $400 or more, or
You receive church employee income of $108.28 or more

Common taxpayers subject to self-employment tax include:

Freelancers
Independent contractors
Sole proprietors
Partners in partnerships
Single-member LLC owners treated as sole proprietors

How Self-Employment Tax Is Calculated

The IRS uses a four-step process to determine self-employment tax.

Step 1: Calculate Net Earnings

Start with your business income and subtract allowable business expenses.

Example:

Business income: $80,000
Business expenses: $20,000

Net earnings = $60,000

Step 2: Apply the IRS Adjustment

Before calculating the tax, multiply your net earnings by 92.35%.

This adjustment reflects the fact that employees don't pay Social Security and Medicare tax on the employer portion of payroll taxes.

Example:

$60,000 × 92.35% = $55,410

Step 3: Calculate the Tax

Apply the Social Security and Medicare tax rates to the adjusted earnings.

Social Security Tax

$55,410 × 12.4% = $6,871

Medicare Tax

$55,410 × 2.9% = $1,607

Total Self-Employment Tax

$6,871 + $1,607 = $8,478

Step 4: Deduct Half of Your Self-Employment Tax

One benefit of paying self-employment tax is that you may deduct 50% of the tax as an adjustment to income.

This deduction:

Reduces your Adjusted Gross Income (AGI)
Does not require itemizing deductions
Helps offset the employer portion of the tax

Using the example above:

Total SE tax: $8,478
Deductible portion: $4,239

2026 Deductions That May Benefit Self-Employed Taxpayers

Recent tax law changes continue to provide several temporary deductions through 2028 that may help eligible taxpayers reduce taxable income.

Deduction for Qualified Tips

Eligible workers in qualifying occupations may deduct up to:

$25,000 of qualified tip income

The deduction begins phasing out when modified adjusted gross income (MAGI) exceeds:

$150,000 for Single filers
$300,000 for Married Filing Jointly filers

Deduction for Qualified Overtime Pay

Eligible taxpayers may deduct up to:

$12,500 of qualified overtime compensation

The same MAGI phaseout thresholds generally apply.

These deductions can reduce taxable income, although special rules determine how they interact with self-employment income and other tax calculations.

Examples

Example 1: Freelancer

A freelance graphic designer earns:

Gross income: $80,000
Business expenses: $20,000

Net earnings are $60,000.

After applying the 92.35% adjustment:

Adjusted earnings: $55,410
Social Security tax: $6,871
Medicare tax: $1,607
Total self-employment tax: $8,478
Deduction for one-half of SE tax: $4,239

Example 2: Self-Employed Hairstylist

A self-employed hairstylist receives substantial qualifying tip income during the year.

If all eligibility requirements are met, the taxpayer may be able to claim a deduction of up to $25,000 for qualified tips, subject to income limitations. This deduction can reduce taxable income and potentially lower overall federal income tax liability.