Taxes
Self-Employment Tax Basics: The 15.3% Explained
Quick answer
If you work for yourself, you pay both halves of Social Security and Medicare tax — the employee half and the employer half. That combined tax is called self-employment (SE) tax. It is separate from, and in addition to, your regular federal income tax, which is why a first freelance tax bill surprises so many people.
Key takeaways
- SE tax is 15.3% (12.4% Social Security + 2.9% Medicare) — on top of income tax, not instead of it.
- You must file Schedule SE if net earnings from self-employment were $400 or more ($108.28 or more for church employees).
- Current-year Social Security wage base and the Schedule SE net-earnings adjustment factor are not stated here, because they change annually — check current IRS guidance.
- Half of SE tax is deductible in figuring AGI; that lowers income tax only, never SE tax itself.
The rate (IRS, verified 2026-10-28)
Educational information only. This page explains self-employment tax in general terms. It is not tax advice — consult a qualified tax professional for advice about your business and return. Employees split Social Security and Medicare tax with their employer (7.65% each); self-employed people pay the full 15.3% themselves. An additional 0.9% Medicare Tax can apply above IRS thresholds ($200,000 single, $250,000 married filing jointly, per the IRS SE-tax page).
Who must pay
You must pay SE tax and file Schedule SE if your net earnings from self-employment were $400 or more (or church employee income of $108.28 or more), per the IRS SE-tax page. The rules apply regardless of age and even if you already receive Social Security or Medicare. Sole proprietors and independent contractors generally figure net earnings on Schedule C first, then Schedule SE.
How it is figured (in order)
Four steps: net profit on Schedule C, net earnings on Schedule SE, apply the rate respecting the wage base, then deduct half for income tax.
1. Net profit on Schedule C
Business income minus ordinary and necessary business expenses.
2. Net earnings on Schedule SE
Schedule SE adjusts net profit to net earnings before applying the rate. The adjustment factor is not stated here; confirm it against current Schedule SE instructions.
3. Apply the rate, respecting the wage base
The 12.4% Social Security portion stops once combined wages and net earnings pass the year's wage base; the 2.9% Medicare portion continues on all net earnings. The current-year wage-base dollar figure is not stated here; check current IRS guidance for the current year's figure.
4. Deduct half for income tax
You can deduct the employer-equivalent portion of SE tax in figuring AGI. That deduction lowers income tax only — it does not lower SE tax itself (IRS SE-tax page).
Worked example (illustrative; net-earnings figure stated, not derived)
Suppose Schedule SE shows net earnings of $46,175. SE tax at 15.3% = $7,064.78 (about $7,065). Half of that — about $3,532 — is deductible in figuring AGI, which at a 22% marginal rate saves about $777 of income tax. SE tax itself is still about $7,065. The lesson: the deduction softens the bill; it does not remove it.
How you pay it: quarterly estimated tax
Nobody withholds SE tax for you. Self-employed people generally pay it through quarterly estimated payments (Form 1040-ES) — see Quarterly Estimated Taxes. If you also have W-2 wages, you can sometimes cover the gap by increasing withholding instead.
Common mistakes
- Budgeting only for income tax and forgetting SE tax entirely.
- Treating gross receipts as the tax base — business expenses on Schedule C reduce it first.
- Assuming small side income escapes SE tax — the threshold is $400 of net earnings, not $400 of gross receipts.
- Mixing up the half-SE-tax deduction: it reduces income tax, not SE tax.
At a glance
| Component | Rate |
|---|---|
| Social Security (old-age, survivors, disability) | 12.4%, up to an annual wage base |
| Medicare (hospital insurance) | 2.9%, no wage cap |
| Combined SE tax rate | 15.3% |
Self-employment tax rate (IRS SE-tax page, verified 2026-10-28)
What this means for you
Budget for SE tax from the first freelance dollar, not at filing time — it is a second tax on top of income tax, paid quarterly because nobody withholds it for you. Unpack Money currently earns $0 affiliate revenue and has no approved affiliate programs, and this page contains no affiliate links.
FAQ
Does forming an LLC avoid SE tax?
Not by itself. A single-member LLC is generally taxed like a sole proprietorship by default; entity elections change treatment and carry their own costs and rules — get professional advice before electing.
Do I owe SE tax on rental income or dividends?
Generally, passive items such as most rental income, dividends, and capital gains are not SE income. Business income is the core case.
Does paying SE tax help me later?
Yes — Schedule SE information goes to the Social Security Administration and counts toward your Social Security earnings record and future benefits.
Sources
- IRS, self-employment tax — https://www.irs.gov/businesses/small-businesses-self-employed/self-employment-tax-social-security-and-medicare-taxes — verified 2026-10-28
- IRS, estimated tax FAQ — https://www.irs.gov/faqs/estimated-tax — verified 2026-10-28
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