US self-employment tax, explained simply

When you were a W-2 employee, you paid 7.65% of every paycheck toward Social Security and Medicare via FICA — and you barely noticed because it was buried in a payroll stub. Your employer paid another 7.65% on top, again invisible to you.

When you’re self-employed, you are the employer. You owe both halves. That’s self-employment tax — 15.3% on your net self-employment earnings, on top of regular federal income tax. It’s a separate line on your return (Schedule SE) and it’s the number that catches almost everyone off guard their first year.

What that 15.3% is made of

• 12.4% Social Security — only on the first $168,600 of net earnings in 2026 (the Social Security wage base). Earnings above that aren’t subject to the Social Security portion.
• 2.9% Medicare — no cap. Every dollar of net SE earnings pays this.
• +0.9% Additional Medicare — kicks in over $200,000 single / $250,000 married filing jointly. Only applies to the earnings above that threshold.

What “net self-employment earnings” means

Not your gross. SE tax is calculated on your business profit — gross income minus deductible business expenses — and then multiplied by 92.35% before SE tax is applied. That 7.65% haircut is a built-in adjustment to mimic the “employer half” you would’ve gotten as a W-2 employee.

So the actual math looks like:

• Gross receipts: $90,000
• Less business expenses: $20,000
• Net profit: $70,000
• × 92.35% = $64,645 (SE-taxable amount)
• × 15.3% = $9,891 in self-employment tax

The SE tax deduction (the saving grace)

You get to deduct half of your SE tax from your adjusted gross income before federal income tax is calculated. It’s an “above-the-line” deduction — you don’t have to itemize to get it.

In the example above, that’s a $4,945 reduction in AGI. For somebody in the 22% federal bracket that saves about $1,088 in income tax. So the effective bite of SE tax is closer to 12.6% than 15.3%.

When you owe SE tax

Any year your net self-employment earnings are $400 or more, you file Schedule SE and pay self-employment tax. There’s no income threshold below which you skip it.

Note that this is a separate threshold from income tax. You might owe no federal income tax at all (your deductions wipe out the bracket) and still owe SE tax — because SE tax has no personal exemption.

How to pay it

You don’t pay SE tax separately. It rolls into your overall federal tax liability and gets settled through quarterly estimated payments and your April 1040 filing. So when you estimate quarterly taxes, you’re paying SE tax + income tax in one bundled payment.

Does paying SE tax give you anything back?

Yes — it credits your Social Security record exactly like W-2 FICA would. Pay enough quarters over your career and you get a Social Security retirement benefit and Medicare eligibility at 65. People who skip reporting SE income to dodge the 15.3% are reducing their own future retirement check.

What this means for your savings rate

If you’re setting aside money for taxes each month, plan for SE tax explicitly:

• ~13% for SE tax (net of the half-deduction)
• ~10–22% for federal income tax depending on bracket
• ~0–10% for state income tax depending on where you live

That’s why most freelancers land between 25% and 35% of net income as a savings rate. We dig into the math in how much to save for taxes.