Self-Employment Tax
Tax Glossary Term
Definition
Self-employment (SE) tax is the FICA equivalent for people who work for themselves — freelancers, independent contractors, sole proprietors, and partners. Since there is no employer to pay half of FICA, self-employed individuals pay both the employee and employer shares: 12.4% for Social Security and 2.9% for Medicare, totaling 15.3%. However, SE tax is not calculated on gross self-employment income. First, you multiply your net self-employment earnings by 92.35% (0.9235), which simulates the fact that employees do not pay FICA on the employer's share. Then you apply the 15.3% rate to that reduced amount, up to the Social Security wage base ($184,500 for 2026). Earnings above the wage base are only subject to the 2.9% Medicare portion. If your net SE income exceeds $200,000 (single) or $250,000 (MFJ), you also owe the 0.9% Additional Medicare Tax on the excess. To soften the burden, the IRS allows you to deduct the employer-equivalent half of SE tax (7.6% of the 92.35% base) as an above-the-line deduction, reducing your AGI. SE tax is reported on Schedule SE and typically paid through quarterly estimated tax payments. Many self-employed individuals are surprised by SE tax because it is in addition to federal and state income tax. A freelancer in the 22.0% bracket with SE tax faces a combined marginal rate of over 37.3% before state taxes.
Example
Net SE income: $80,000
Taxable base: $80,000 x 92.35% = $73,880
SS portion: $73,880 x 12.4% = $9,161
Medicare portion: $73,880 x 2.9% = $2,143
Total SE tax: $11,304
Above-the-line deduction: $11,304 / 2 = $5,652