Self-employment tax is 15.3% of your net earnings, split into two parts: 12.4% for Social Security and 2.9% for Medicare

When you work for an employer, that employer withholds Social Security and Medicare taxes from your paycheck — the same taxes that fund retirement, disability, and health insurance for people over 65. The employer also pays an equal amount on your behalf. When you're self-employed, you pay both halves yourself. That combined 15.3% is called self-employment tax, and it's separate from your income tax.

The rate itself doesn't change based on how much you earn, but the amount you owe does. You calculate it on your net profit — what's left after you subtract business expenses from revenue. You also get a deduction for half of what you pay, which reduces your taxable income. This matters because it means self-employment tax and income tax interact in a way that's different from a W-2 job.

Key Takeaways

  • Self-employment tax is 15.3% total: 12.4% goes to Social Security (up to a wage base limit that changes yearly) and 2.9% goes to Medicare with no upper limit.
  • You owe self-employment tax on net profit from your business, calculated after subtracting legitimate business expenses from what you earned.
  • You can deduct half of your self-employment tax payment when you calculate your income tax, which lowers the total tax you owe.
  • Self-employment tax is filed on Schedule SE (Form 1040), which feeds into your main tax return; it's not a separate payment to a different agency.
  • If you have both W-2 income and self-employment income, the Social Security portion of self-employment tax only applies to earnings above what you already paid through your W-2 job, up to the yearly limit.

How the 15.3% breaks down between Social Security and Medicare

The Social Security portion is 12.4% of your net self-employment income, but only up to a wage base limit. That limit changes every year — in 2024 it was $168,600, in 2025 it's higher. Once your net earnings hit that cap, you stop paying the 12.4% on anything above it. This is why high-earning self-employed people don't pay Social Security tax on all their income.

The Medicare portion is 2.9% of all your net self-employment income, with no upper limit. There's also an additional 0.9% Medicare tax that kicks in if your total income (W-2 plus self-employment) exceeds certain thresholds — $200,000 for single filers, $250,000 for married filing jointly. That additional tax applies only to income above the threshold.

Together, 12.4% plus 2.9% equals the 15.3% you hear quoted. But because the Social Security part has a ceiling and the Medicare part doesn't, the effective rate on very high earnings is lower than 15.3%.

What counts as net earnings for self-employment tax

You don't pay self-employment tax on your gross revenue. You pay it on net profit — the money left after you subtract business expenses. If you earned $50,000 but spent $15,000 on supplies, rent, equipment, or other legitimate business costs, your net profit is $35,000, and that's what the 15.3% applies to.

Common deductible expenses include office supplies, equipment depreciation, vehicle mileage (or actual vehicle expenses if you track them), home office space, professional services, insurance, and meals and entertainment related to business. You need to keep records — receipts, invoices, mileage logs — because the IRS can ask to see them.

If you have a loss — you spent more than you earned — your self-employment tax is zero for that year. You still file Schedule SE, but the calculation shows zero tax owed.

The self-employment tax deduction and how it lowers your total tax bill

After you calculate how much self-employment tax you owe, you get to deduct half of it from your income before calculating income tax. If you owe $3,000 in self-employment tax, you deduct $1,500 from your taxable income. This is a real deduction — it reduces the income that income tax is calculated on.

Why does this matter? Because it means self-employment tax isn't quite as heavy as 15.3% sounds. If you're in the 22% income tax bracket and you owe $3,000 in self-employment tax, the $1,500 deduction saves you about $330 in income tax. Your total tax bill is lower than it would be without the deduction.

You claim this deduction on Form 1040 itself, not on Schedule C or Schedule SE. It's a line item that appears automatically if you file electronically, or you calculate it yourself if you file by hand.

How self-employment tax interacts with W-2 income

If you have both a job where you receive a W-2 and self-employment income, the rules overlap in a specific way. Your W-2 employer already withheld Social Security tax from your paycheck — up to the yearly wage base limit. When you calculate self-employment tax on your business income, you only owe the 12.4% Social Security portion on earnings that, combined with your W-2 wages, don't exceed that year's limit.

For example, if you earned $160,000 on a W-2 in 2024 and had $20,000 in self-employment income, you would not owe the 12.4% Social Security tax on any of that $20,000, because your W-2 wages already hit the $168,600 cap. You would still owe the 2.9% Medicare tax on the full $20,000. This prevents you from paying Social Security tax twice on the same earnings.

The Medicare portion has no such limit, so you pay 2.9% on self-employment income regardless of how much W-2 income you had.

When and how to report self-employment tax

You report self-employment tax on Schedule SE, which is part of Form 1040. Schedule SE has two sections: Short Schedule SE (for most people with straightforward self-employment income) and Long Schedule SE (if you had a net loss or other complications). The form walks you through calculating net profit from Schedule C (your business profit and loss statement), then applies the 15.3% rate to arrive at your self-employment tax.

You file Schedule SE along with your Form 1040 and any other schedules you need. The self-employment tax amount flows to your Form 1040, where it's added to your income tax to get your total tax bill. You pay this through quarterly estimated tax payments if you expect to owe more than $1,000, or you can pay it all when you file your return.

If you use tax software, it usually calculates Schedule SE for you once you enter your business income and expenses. If you work with a tax preparer, they handle it as part of preparing your return.

Frequently Asked Questions

Do I have to pay self-employment tax if I'm just starting out and haven't made much money yet?

You owe self-employment tax only on net profit. If your business expenses equal or exceed your revenue, you have no net profit and owe no self-employment tax. You still file Schedule SE to show the calculation, but the amount due is zero. Once your business becomes profitable, self-employment tax applies to that profit.

Can I reduce my self-employment tax by deducting more business expenses?

Yes, but only legitimate ones. Every dollar of genuine business expense you deduct reduces your net profit, which reduces the amount self-employment tax is calculated on. However, you can't invent expenses or claim personal spending as business spending. The IRS audits self-employment returns, and false deductions create risk that far outweighs the tax savings.

What if I'm a contractor and my client sends me a 1099 instead of a W-2?

A 1099 means you're self-employed for tax purposes, and you owe self-employment tax on that income. The 1099 reports what the client paid you, but you still deduct your business expenses to arrive at net profit before calculating self-employment tax. You file Schedule C and Schedule SE just as you would for any self-employment income.

Is self-employment tax the same as income tax?

No. Self-employment tax funds Social Security and Medicare. Income tax is separate and funds general government operations. You owe both. Self-employment tax is calculated on Schedule SE, while income tax is calculated on Form 1040. They're two different taxes on the same income.

Do I have to make quarterly estimated tax payments if I'm self-employed?

You should make quarterly estimated payments if you expect to owe $1,000 or more in total tax (income tax plus self-employment tax) for the year. Payments are due April 15, June 15, September 15, and January 15. If you don't pay quarterly and owe a large amount at filing time, you may owe a penalty for underpayment, even if you pay in full when you file.