Self-Employment Tax Explained: How the 15.3% Works
Self-employment tax is the part of freelancing that surprises people most. It is separate from income tax, and it is calculated on your profit from the first dollar. Here is what it is, how it's figured, and how to estimate it.
What it is
Self-employment tax is the Social Security and Medicare tax (FICA) for people who work for themselves. Employees split FICA with their employer, each paying 7.65%. When you are your own employer, you pay both halves.
| Part | Rate | What it covers |
|---|---|---|
| Social Security | 12.4% | Retirement, disability, and survivor benefits |
| Medicare | 2.9% | Hospital insurance |
| Total | 15.3% |
Who owes it
You generally owe it if your net earnings from self-employment are $400 or more in a year. That includes freelancers, independent contractors, gig workers, and sole proprietors. You owe it even if you also have a regular job.
The 92.35% step
The 15.3% is not applied to your full profit. It is applied to 92.35% of your net self-employment earnings. That adjustment mirrors the way an employer's half of FICA is not counted as the employee's wages.
How to calculate it
- Start with net profit: income minus business expenses
- Multiply by 0.9235
- Multiply the result by 0.153
- Half of the answer is deductible when you figure your income tax
Worked examples (2026)
| Net profit | × 92.35% | Self-employment tax | Deductible half |
|---|---|---|---|
| $40,000 | $36,940 | $5,652 | $2,826 |
| $60,000 | $55,410 | $8,478 | $4,239 |
| $100,000 | $92,350 | $14,130 | $7,065 |
In each case the tax works out to roughly 14.1% of your profit, not 15.3%, because of the 92.35% adjustment.
The Social Security cap and the extra Medicare tax
- Social Security stops at the wage base. The 12.4% applies only up to $184,500 of earnings in 2026. Above that, only the 2.9% Medicare portion continues. If you also have W-2 wages, they count toward the same cap.
- Additional Medicare Tax. An extra 0.9% applies to earnings above $200,000 for a single filer.
The 2027 Social Security cap is expected to rise. Check the official figure when the Social Security Administration publishes it this month.
It is separate from income tax
Self-employment tax is on top of federal income tax, and state income tax if your state has one. In the $60,000 example from our 1099 vs. W-2 comparison, self-employment tax was $8,478 and federal income tax was only $4,511. For many freelancers the self-employment tax is the bigger bill.
Ways to reduce what you owe
- Track business expenses. Self-employment tax is calculated on profit, so every legitimate deduction reduces it.
- Claim the deduction for half of it. Your tax software or preparer does this automatically.
- Check other deductions. Self-employed health insurance premiums and retirement contributions such as a SEP IRA or solo 401(k) can reduce your income tax. Qualified business income may also qualify for a deduction. Ask a tax professional what applies to you.
Paying it
Nothing is withheld from freelance payments, so self-employed workers generally pay quarterly estimated taxes. The next due date for the 2026 tax year is January 15, 2027, subject to weekend and holiday shifts. Putting aside 25 to 30% of each payment is a common starting point.
Compare it with a salary
To see what the same income would pay as an employee, run it through the PayGauge take-home pay calculator.
This article is for general information, not tax advice. A tax professional can help with deductions and estimated payments specific to your situation.
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