When you work for an employer, half of your Social Security and Medicare taxes are paid by the employer. When you work for yourself, you pay both halves. That combined bill is called self-employment tax, and it comes on top of regular income tax. Many first-time freelancers and small business owners are surprised by it, so it helps to know how it is figured before the first estimated payment is due.
Who pays self-employment tax
Sole proprietors, independent contractors, gig workers, freelancers, and partners who receive a share of partnership income or guaranteed payments all generally owe self-employment tax. It applies no matter how old you are and even if you already receive Social Security or Medicare benefits. A single-member LLC that is taxed as a sole proprietorship is treated the same way. If you receive a Form 1099-NEC or 1099-K for services, the income is generally reported on Schedule C. See Schedule C for sole proprietors.
Church employees whose employer is exempt from employer Social Security and Medicare taxes may owe the tax on wages of $108.28 or more for 2025. Ministers and certain religious workers have their own rules.
How the tax is calculated
You figure it on Schedule SE (Form 1040) in four steps:
- Start with net profit from Schedule C (or your share of partnership income).
- Multiply by 92.35%. This approximates the employee-side adjustment, since an employer would have deducted its half of the tax.
- Apply 12.4% to the amount up to the Social Security wage base (reduced by any W-2 wages you also earned that year) and 2.9% to the entire amount.
- Enter the result on Schedule 2 and on Form 1040. Deduct half of it on Schedule 1.
The Social Security wage base is $176,100 for 2025 and $184,500 for 2026. There is no cap on the 2.9% Medicare portion. Higher earners can also owe a 0.9% Additional Medicare Tax on self-employment income over $200,000 for single filers, $250,000 for joint filers and $125,000 for married people filing separately.
Example
Example: Arun is a freelance software consultant with no other income. In 2025 his net profit on Schedule C is $100,000. His net earnings subject to the tax are $100,000 x 92.35% = $92,350. Social Security tax is 12.4% x $92,350 = $11,451.40 and Medicare tax is 2.9% x $92,350 = $2,678.15, for self-employment tax of about $14,130. He deducts half, about $7,065, in figuring adjusted gross income. Income tax is then figured separately, and the deduction lowers it slightly.
Ways it can be reduced
Self-employment tax is based on net profit, so legitimate business expenses reduce it. Common categories include supplies, software, professional fees, business insurance, a home office that meets the rules, and mileage. See our guides on business expense deductions and home office deductions.
Choosing a different business structure can change the numbers. An S corporation owner who works in the business must be paid reasonable compensation, and the wages are subject to payroll tax, while the remaining profit is not subject to self-employment tax. This only makes sense above certain profit levels once administrative costs are considered, and the IRS looks closely at compensation levels. See S corporation taxes and reasonable compensation.
Some people use the optional methods on Schedule SE when profits are low or negative to earn Social Security credits. Retirement contributions and the health insurance deduction reduce income tax but not self-employment tax.
Paying it during the year
Because no employer withholds this tax, you generally pay it with quarterly estimated payments on Form 1040-ES, or by increasing withholding on a spouse's job. Missing payments can lead to an underpayment penalty. See estimated taxes.
Common mistakes
- Forgetting that Social Security and Medicare tax apply to profit, not just to cash you withdrew.
- Not setting aside money each month and facing a large bill in April.
- Ignoring the earnings you receive through platforms that issue Form 1099-K.
- Assuming a W-2 job covers everything. Side income is taxed in addition, although the Social Security wage base is shared between wages and self-employment earnings.
State considerations
Self-employment tax is federal only. Illinois starts from federal adjusted gross income and does not tax Social Security benefits, but business income is taxed at the flat Illinois rate. See our Illinois guide.
How we can help
We prepare Schedule C and Schedule SE, set up quarterly estimates, review whether a different structure makes sense, and keep your records ready for a possible IRS question. See our page for self-employed people and freelancers or contact us.
Frequently asked questions
Do I owe self-employment tax if I also have a W-2 job?
Yes, on net self-employment earnings of $400 or more. The Social Security wage base is shared between your W-2 wages and self-employment earnings, so you may owe less Social Security portion than someone with only self-employment income.
Is self-employment tax deductible?
One-half of it is deductible when figuring adjusted gross income. It is not deductible against the self-employment tax itself.
What is the 92.35% for?
It treats you as if an employer had deducted its half of the taxes from your pay. The result is that you pay the 15.3% rate on 92.35% of your net profit.
Can I avoid it by forming an LLC?
Not by forming an LLC alone. A single-member LLC taxed as a sole proprietorship still owes it. Electing S corporation treatment changes how the income is taxed but has its own rules.
Official sources
- IRS: Topic no. 554, Self-employment tax
- IRS: Instructions for Schedule SE (Form 1040), 2025
- IRS: Self-employment tax (Social Security and Medicare taxes)
- IRS: Publication 15 (2026), Employer's Tax Guide
This page is a plain-language summary. The official source controls if there is any difference.
General information only, not tax, legal or accounting advice for your situation. Rules, limits and deadlines change; confirm the current rules with the official source or a qualified professional before you act. Reading this page does not create a professional relationship with CPA Tax Payroll and Accounting Corp.