What Is Self-Employment Tax?
It's the tax that surprises almost every new freelancer — an extra 15.3% on top of income tax. Here's exactly what it is and how to handle it.
The short definition
Self-employment (SE) tax is how the self-employed pay into Social Security and Medicare. For employees, these come out of every paycheck and the employer matches them. When you work for yourself, there's no employer to match — so you pay both halves. That total is 15.3%.
Where the 15.3% comes from
- 12.4% Social Security — on your net earnings up to the annual wage base ($184,500 in 2026).
- 2.9% Medicare — on all of your net earnings, no cap.
- +0.9% additional Medicare — on earnings above $200,000 (single) or $250,000 (married filing jointly).
SE tax is charged on 92.35% of your net profit (a small adjustment that mirrors the employer-side deduction employees get). So on $50,000 of profit, SE tax is roughly 15.3% × ($50,000 × 0.9235) ≈ $7,065.
It's on top of income tax
This is the part that catches people out: SE tax is separate from federal income tax. You owe both. That's why "set aside 25–30%" is the rule of thumb — it has to cover income tax and this 15.3%. The one bit of relief: you deduct half of your SE tax against your income tax.
Calculate yours exactly. The Self-Employment Tax Calculator works out your SE tax, your income tax, and the total to set aside — from just your profit and filing status.
How to lower it
Two legitimate levers: deduct everything (SE tax is charged on profit, so every business expense reduces it — see our deductions checklist), and at higher income, some freelancers elect S-corporation status to split pay between a salary and distributions. The S-corp route adds complexity and cost, so run it past a CPA first.
The takeaway
Self-employment tax is 15.3% for Social Security and Medicare, on top of income tax, on your net profit. Budget for it, deduct aggressively to shrink the base, and pay it through your quarterly estimates.
General information, not tax advice.
Frequently asked questions
What is the self-employment tax rate?
It is 15.3% — 12.4% for Social Security (up to the annual wage base) plus 2.9% for Medicare on all net earnings, with an extra 0.9% Medicare above $200k/$250k. It applies to 92.35% of your net business profit.
Why do freelancers pay self-employment tax?
Employees split Social Security and Medicare taxes 50/50 with their employer. When you work for yourself, you are both the employer and the employee, so you pay both halves. You do get to deduct one half against your income tax.
How can I reduce self-employment tax?
Deduct every legitimate business expense to lower net profit, and — at higher income — some freelancers form an S-corporation to split earnings between salary and distributions. Talk to a CPA before restructuring.