Self-Employment Tax Explained
United States, 2026 tax year. Educational summary, not tax advice — see your CPA or enrolled agent for your specific return.
If you've ever heard a freelancer mention "the 15.3 percent" with a wince, this is what they mean. Self-employment tax is the Social Security and Medicare tax that an employee usually splits 50/50 with an employer. When you work for yourself, there is no employer. You pay both halves. The total is 15.3 percent of your net self-employment earnings, and it is the line item that catches most new freelancers off-guard their first April.
What 15.3% actually breaks down to
Self-employment tax is reported on IRS Schedule SE, attached to Form 1040. The 15.3 percent is the sum of two pieces:
- 12.4% Social Security on the first $168,600 of net earnings for 2024 (wage base rises annually; for 2026 the figure is roughly $179,000, but verify the current SSA wage base each year).
- 2.9% Medicare on all net earnings, with no cap.
- +0.9% Additional Medicare Tax on net earnings above $200,000 (single) or $250,000 (married filing jointly). This is on top of the 2.9 percent.
For a freelancer with $80,000 of net earnings, the simple calculation is: $80,000 × 0.9235 (the IRS's "92.35 percent" adjustment that approximates what an employee would have paid) × 15.3 percent ≈ $11,304. That's separate from federal income tax, separate from state income tax, and separate from any health-insurance premium.
The deduction nobody tells you about
There is some good news: you get to deduct the "employer half" of self-employment tax — roughly 7.65 percent — from your income before federal income tax is calculated. This is the "deductible part of self-employment tax" that flows to Schedule 1 of Form 1040 and reduces your adjusted gross income. It's an above-the-line deduction, so you get it whether or not you itemize.
In the $80,000 example, that deduction shaves roughly $5,650 off your AGI, which at a 22 percent federal marginal rate saves about $1,243 in income tax. The net cost of the SE tax in that bracket is roughly $11,304 minus $1,243, or about $10,060.
When self-employment tax kicks in
You owe SE tax once your net self-employment earnings reach $400 in a tax year. There is no minimum income to avoid it the way there sometimes is for federal income tax. The IRS treats freelance work as immediately taxable for Social Security and Medicare purposes; the threshold is $400 net, not $400 gross.
Federal income tax is on top
SE tax is its own line. You also owe regular federal income tax on the same income, calculated on the rest of Form 1040. For most freelancers earning between $50,000 and $150,000 net, the combined federal hit (income tax + SE tax minus the SE deduction) lands somewhere between 22 and 32 percent of net earnings. State income tax (where applicable) sits on top of that.
A reasonable rule of thumb for set-aside is 25 to 30 percent of every payment, parked in a separate savings account labeled "taxes" and not touched. The right number depends on your state, your deductions, and your income level — but 25 to 30 percent is more accurate than the "10 percent" guess most first-year freelancers default to.
Quarterly estimated payments
SE tax and federal income tax for self-employed filers are paid quarterly through Form 1040-ES, not annually. The 2026 due dates are roughly April 15, June 15, September 15, and January 15 of the following year. Skip a quarter and the IRS adds an underpayment penalty when you file. We have a separate guide on estimated quarterly taxes with the exact mechanics.
What about an LLC or S-corp?
Forming a single-member LLC by itself does not change your SE tax bill — a default-classified LLC files on your Schedule C and Schedule SE the same way a sole proprietor does. The S-corp election (Form 2553) is the structure that can reduce SE tax: with an S-corp, you pay yourself a "reasonable salary" subject to FICA payroll tax, and any additional profit flows through as a distribution that is not subject to SE tax. The savings are real once net earnings clear roughly $80,000 to $100,000, but you take on payroll administration, an annual 1120-S return, and IRS scrutiny on the "reasonable salary" question. Talk to a CPA before electing — the trade-off is real and the wrong call can cost more than it saves.
How this affects your hourly rate
SE tax is the single biggest reason a freelancer's "rate" is not the same as an employee's "salary divided by 2,080 hours." If you bill $100/hr for 1,500 hours a year ($150,000 gross), expect roughly $20,000 in self-employment tax alone before federal income tax. The BillMyRate calculator bakes in an annual business-expenses field so you can include SE tax as a line item — at minimum, set it to 15 percent of your target take-home as a starting estimate.
Authoritative sources
- IRS — About Schedule SE (Form 1040)
- IRS — Self-Employment Tax (Social Security and Medicare Taxes)
- SSA — Contribution and Benefit Base (annual Social Security wage base)
- IRS Publication 334, Tax Guide for Small Business.