How self-employment tax works

On a W-2 job, Social Security and Medicare get split: half from your pay, half from your employer. Go out on your own as a sole proprietor, a single-member LLC owner or a partner and nobody covers the other half. You pay all of it, as self-employment tax, and income tax on top. Plenty of small business owners find it's the bigger of the two bills.

The rate

It's 15.3% in all. Per IRS Topic 554, 12.4% of that is Social Security and 2.9% is Medicare.

Social Security stops at the 2026 wage base, $184,500, from Topic 751. Earn past it and only the Medicare parts keep going.

What it is charged on

The tax is not charged on your whole profit. Topic 554 says you figure it on 92.35% of your net earnings from self-employment. The 7.65% you leave out matches the employer half that an employee's wages never include.

Below $400 of net earnings from self-employment for the year, you owe nothing. At $400 you owe it. The math is done on Schedule SE, and the result is carried to Form 1040 next to your income tax.

The deductible half

Half of what you pay comes off when you work out adjusted gross income. That cuts your income tax. Your self-employment tax stays the same.

One piece doesn't get halved: the 0.9% additional Medicare tax. Section 164(f) gives the deduction for half of the self-employment taxes "other than the taxes imposed by section 1401(b)(2)", and section 1401(b)(2) is that 0.9%.

Additional Medicare tax

An extra 0.9% applies above a threshold, and nobody matches it. Topic 560 puts the threshold at $200,000 if you're single or head of household. Married couples filing jointly get $250,000; married filing separately, $125,000. Wages and self-employment income add up against one threshold. A spouse earning $180,000 in salary plus another running a side business with $90,000 of profit can cross it together.

Worked example: $100,000 of profit

Take a single sole proprietor whose Schedule C shows $100,000 of net profit for 2026. No wages, no other earnings.

That $14,129.55 is due whether or not the owner takes any money out of the business. It is about 14.1% of profit.

Worked example: $250,000 of profit

Same owner, a better year: $250,000 of net profit.

The rate falls as profit rises past the wage base. Here it is about 11.9% of profit. The deductible half is $14,786.69, half of the first three lines before the additional Medicare tax.

How business structure changes it

That gap is the reason owners look at an S election. The saving is the self-employment tax on profit above a reasonable salary, minus what payroll and the extra tax return cost. At $100,000 of profit with a $40,000 salary, both halves of payroll tax come to $6,120 against $14,129.55 of self-employment tax. The calculator nets that against the payroll costs and the income tax changes for your state.

Paying it during the year

There is no employer withholding for self-employment tax. You pay it with quarterly estimated tax, along with income tax, using Form 1040-ES. Skip the payments and the IRS can charge an underpayment penalty even if you pay the full amount in April.