Key takeaway
You pay both the employer and employee halves, so set aside a slice of each payment and pay estimated taxes quarterly.
Key takeaway
Self-employment tax covers your Social Security and Medicare share, and as a self-employed person you pay both the employer and employee portions. Setting aside roughly 25 to 30 percent of profit and paying quarterly keeps you out of a surprise bill.
What self-employment tax is
When you work for an employer, Social Security and Medicare taxes (FICA) are split: you pay half through your paycheck, and your employer pays the other half. When you are self-employed, there is no employer, so you pay both halves yourself. That combined amount is the self-employment (SE) tax.
For 2026 the SE tax rate is 15.3% on net self-employment earnings up to the Social Security wage base, with a 2.9% Medicare portion that continues above it and an extra surtax at higher incomes. The key point: it sits on top of your regular income tax, so self-employed profit is taxed twice—income tax and SE tax.
How the amount is calculated
You start with net earnings from self-employment, which is your business profit after allowable expenses. The SE tax applies to about 92.35% of that net profit, because the law lets you deduct the employer half of the tax before computing it.
A simplified picture:
- Net profit: $50,000
- Subject to SE tax: about $46,175 (92.35% of $50,000)
- SE tax at 15.3%: about $7,075
That $7,075 is on top of whatever income tax you owe on the profit. The Self-Employment Tax Calculator handles the exact wage-base thresholds and surtax for your numbers.
Why quarterly estimated payments matter
Employees have tax withheld automatically. Self-employed people usually have nothing withheld, so the IRS expects you to pay as you go through quarterly estimated payments (Form 1040-ES). If you wait until April, you may owe a large bill plus an underpayment penalty.
A practical habit: each time income comes in, move a slice to a separate tax account. A common rule of thumb is to set aside roughly 25 to 30 percent of profit, then true up at filing. The exact share depends on your total income, deductions, and state tax.
Deductions that lower the bill
Several moves reduce the taxable base:
- Half of the SE tax is deductible above the line, which is built into the 92.35% figure.
- Business expenses—software, supplies, a portion of home internet, mileage—reduce net profit directly.
- The qualified business income (QBI) deduction can lower taxable income for many pass-through businesses, though limits apply at higher incomes.
- A SEP, SIMPLE, or solo 401(k) contribution reduces both income tax and, by lowering profit, the SE tax base.
These interact with your overall return, so the Federal Income Tax guide is a useful companion read.
Common mistakes
- Forgetting the employer half. New freelancers often budget only for income tax and are blindsided by SE tax.
- Not paying quarterly. A big April bill plus a penalty is avoidable with four smaller payments.
- Mixing business and personal money. Clean records make deductions easier to defend and profit easier to compute.
- Missing the deduction for the employer half by not reporting it correctly.
- Ignoring state obligations. Some states have their own versions of self-employment tax or replacements.
How to stay ahead of it
- Open a separate business account so profit and expenses are clear.
- Track every deductible expense as it happens, not at tax time.
- Set aside a percentage of each payment the day it arrives.
- Pay estimated taxes quarterly using Form 1040-ES deadlines.
- Reconcile midyear with a checkup like the midyear paycheck checkup, adapted to your own withdrawals.
Related next steps
Estimate your liability with the Self-Employment Tax Calculator, understand the bigger picture in federal income tax explained, and plan retirement contributions with the 401k Calculator.