Self-Employment Tax Guide: Calculate and Pay What You Owe

Self-employment tax covers Social Security and Medicare for people without an employer withholding them. The combined rate is 15.3% on net earnings up to the annual Social Security wage base, plus income tax on top. Unlike W-2 employees, you pay both the employee and employer halves of FICA — which is why your tax burden feels heavier than a salaried peer earning the same gross income.

In 2026, the Social Security wage base limit is $184,500. That means you pay 12.4% Social Security tax only on the first $184,500 of net self-employment earnings. Medicare tax (2.9%) applies to all net earnings with no cap. An additional 0.9% Medicare surtax applies to income over $200,000 (single) or $250,000 (married filing jointly).

Who Owes Self-Employment Tax

You owe SE tax if you have net self-employment income of $400 or more. That threshold is lower than most people expect. It includes freelancers, gig workers, independent contractors, and sole proprietors. Even side income under $600 counts if your net is over $400 — you do not need a 1099-K or 1099-NEC to owe the tax.

If your only income is W-2 wages, you do not pay SE tax — your employer withholds FICA. The moment you add freelance income, that freelance portion becomes subject to SE tax unless you elect to be taxed as an S-corp (more on that later).

The $400 threshold has not changed for decades, but it catches many new freelancers off guard. A college student who earns $500 tutoring over the summer owes SE tax. A retiree who earns $1,000 selling crafts on Etsy owes SE tax. A part-time writer who earns $3,000 in a busy quarter owes SE tax. The IRS does not send you a bill. You must calculate and pay it yourself through quarterly estimated payments.

How to Calculate It

The IRS uses a specific formula, not a simple 15.3% of gross income. Here is the step-by-step calculation:

1. Start with your net business income from Schedule C (gross income minus business expenses).
2. Multiply by 92.35% — this gives you your "net earnings from self-employment."
3. Multiply by 15.3% to get your SE tax.
4. Deduct 50% of the SE tax on your Form 1040 as an above-the-line adjustment.

Concrete Example: $75,000 Net Income

• Net business income: $75,000
• Net earnings from self-employment: $75,000 × 92.35% = $69,262.50
• SE tax: $69,262.50 × 15.3% = $10,597.16
• Above-the-line deduction: $10,597.16 × 50% = $5,298.58
• Adjusted gross income after deduction: $75,000 − $5,298.58 = $69,701.42

The above-the-line deduction is valuable because it reduces your federal income tax directly, even if you do not itemize. In this example, at the 22% bracket, the deduction saves you roughly $1,166 in income tax.

Income Tax on Top of SE Tax

SE tax is only part of the picture. You also pay federal and state income tax on your net business income after the above-the-line deduction. For the $75,000 example above, your taxable income is roughly $69,701 after the deduction. At the 22% federal bracket, income tax is about $11,234. Add state tax if applicable.

Total tax burden for this example: $10,597.16 SE tax + $11,234 income tax = $21,831.16. Your effective total tax rate is roughly 29.1%. Compare that to a W-2 employee at the same $75,000, who would pay about $15,552 in combined FICA + federal tax — a difference of roughly $6,279.

How SE Tax Compares to W-2 FICA

The hidden cost of self-employment is best understood by comparison. A W-2 employee pays only the employee half of FICA: 7.65%. The employer pays the other 7.65% invisibly. As a freelancer, you pay both halves: 15.3%. On $75,000, that is $11,475 in gross SE tax. After the 50% above-the-line deduction, the effective cost is $5,738 in additional tax versus a W-2 peer.

Original comparison: a freelance graphic designer and a salaried designer both earn $80,000. The W-2 designer pays $6,120 in FICA and $9,600 in income tax. Total: $15,720. The freelancer pays $11,664 in SE tax and $10,400 in income tax. Total: $22,064. The freelancer needs to charge $6,344 more just to break even on taxes alone. This is why freelancer rates are 20–30% higher than W-2 salaries for similar work.

Social Security Wage Base and Medicare Surtax

In 2026, the Social Security wage base is $184,500. You pay 12.4% Social Security tax only on the first $184,500 of combined wages and self-employment income. If you have a W-2 job paying $100,000 and freelance income of $90,000, your Social Security tax applies only to $84,500 of freelance income (the remaining $100,000 already hit the cap through your W-2).

Medicare tax (2.9%) applies to all net earnings with no cap. If your income exceeds $200,000 (single) or $250,000 (married filing jointly), an additional 0.9% Medicare surtax applies to the excess. This surtax is not reduced by the above-the-line deduction.

Original high-income calculation: a freelance consultant has $300,000 in net self-employment income and no W-2 wages. Social Security tax applies to $184,500: $22,878. Medicare tax (2.9%) applies to $300,000: $8,700. Additional Medicare surtax (0.9%) applies to $100,000 (over $200,000 threshold): $900. Total SE tax: $32,478. After the 50% above-the-line deduction ($16,239), AGI is $283,761. Income tax at the 37% bracket is approximately $78,000. Total federal burden: $110,478. Effective rate: 36.8%.

Quarterly Estimated Payments

Because no taxes are withheld from freelance income, the IRS requires quarterly estimated payments using Form 1040-ES. The deadlines for tax year 2026 are April 15, June 15, September 15, and January 15, 2027. Missing a deadline triggers an underpayment penalty, even if you pay the full amount by April 2027.

To avoid penalties, pay the smaller of:

• 90% of the current year's total tax, or
• 100% of last year's total tax (110% if your AGI was over $150,000)

The safest approach is to send four equal payments based on last year's total tax. If your income grew significantly, top up with a fifth payment in January to cover the gap.

S-Corp Election: Is It Worth It?

High-earning freelancers sometimes elect S-corp status to reduce SE tax. The idea: instead of taking all profit as self-employment income, you take a "reasonable salary" (subject to SE tax) and take the remainder as distributions (not subject to SE tax, only income tax).

Example: You net $120,000. Take $80,000 as salary (SE tax applies), $40,000 as distribution (no SE tax). SE tax savings: $40,000 × 15.3% = $6,120. But you now have payroll costs, a separate tax return (Form 1120-S), and stricter record-keeping. The break-even point varies by income and state; most advisors recommend considering it only above $80,000–$100,000 net.

Additional S-Corp costs: payroll processing ($50–$100/month), accountant fees ($500–$2,000/year for corporate return), and potential state franchise taxes. Net savings after costs: typically $3,000–$5,000 annually for freelancers earning $100,000–$200,000.

Record-Keeping Requirements

Keep business income and expense records for at least three years after filing. If the IRS finds a substantial understatement of income (more than 25%), the window extends to six years. Keep bank statements, invoices, receipts, and mileage logs organized by year and category. Digital storage is fine — save PDFs and photos.

Tools to Simplify SE Tax

Our Tax Calculator estimates your SE tax liability and quarterly payment amounts from your income and expense data. It runs entirely in your browser — no account, no uploads. Combine it with our Budget Planner to set aside tax reserves automatically and avoid April surprises.