How self-employment tax works
When you work for an employer, half of your Social Security and Medicare taxes are paid by the employer. When you are self-employed, you are both employee and employer, so you pay both halves through the self-employment tax on Schedule SE. This is separate from, and in addition to, your federal income tax.
- Start with net profit from Schedule C: revenue minus ordinary and necessary business expenses.
- Multiply by 92.35% to get net earnings from self-employment. If this is under $400 you owe no SE tax.
- Apply 12.4% Social Security tax to earnings up to the 2026 wage base of $184,500, less any W-2 wages that have already used up part of the base.
- Apply 2.9% Medicare tax to all net earnings, plus a 0.9% Additional Medicare Tax on earnings above $200,000 (single) or $250,000 (married filing jointly) when combined with wages.
- Deduct half of the SE tax on Schedule 1 when calculating adjusted gross income.
Worked example: $100,000 of 1099 profit
| Step | Amount |
|---|---|
| Net profit | $100,000.00 |
| × 92.35% = SE earnings | $92,350.00 |
| Social Security (12.4%) | $11,451.40 |
| Medicare (2.9%) | $2,678.15 |
| Self-employment tax | $14,129.55 |
| Deduction for half of SE tax | $7,064.78 |
| Adjusted gross income | $92,935.23 |
| Standard deduction (single) | $16,100.00 |
| QBI deduction (20%) | $15,367.05 |
| Federal taxable income | $61,468.18 |
| Federal income tax | $8,235.00 |
| Total federal tax (SE + income) | $22,364.55 |
On $100,000 of profit, a single filer with no other income owes about $22,365 in total federal tax, or 22% of profit, before any state tax. The qualified business income deduction is limited to 20% of taxable income before the deduction and phases out for certain service businesses at higher incomes.
Ways self-employed people lower their tax bill
- Deduct every legitimate business expense (software, equipment, home office, mileage, professional fees), because each dollar reduces both income tax and SE tax. The 2026 IRS business mileage rate is 72.5 cents per mile through June 30 and 76 cents per mile from July 1.
- Contribute to a SEP-IRA or Solo 401(k). Contributions reduce income tax (not SE tax) and are limited by net earnings and the 2026 §415(c) cap of $72,000.
- Deduct self-employed health insurance premiums if you are not eligible for an employer plan.
- Claim the QBI deduction of up to 20% of qualified business income.
More detail is in our guide to self-employment tax deductions. If you are still deciding between contract and employee work, read 1099 vs W-2.
Paying the tax
There is no withholding on 1099 income, so you pay as you go through quarterly estimated taxes. Use that calculator to turn the totals above into four dated payments, including the safe-harbor amount that avoids an underpayment penalty.
Who owes self-employment tax
You owe self-employment tax if you had net earnings from self-employment of $400 or more in the year. That includes freelancers, independent contractors, gig workers, sole proprietors, and partners in a partnership. It applies even if you also have a W-2 job; your wages and your self-employment earnings both count toward the Social Security wage base, so high W-2 earners may owe only the 2.9% Medicare portion on their side income. Enter your W-2 wages in the calculator to see this effect.
Schedule SE in brief
On your return, you calculate the tax on Schedule SE: multiply net profit from Schedule C by 92.35%, apply 12.4% to the portion under the Social Security wage base and 2.9% to the entire amount, and add the 0.9% Additional Medicare Tax if earnings exceed the threshold ($200,000 single, $250,000 joint). The total is added to your income tax on Form 1040, and half of the SE tax is deducted when calculating adjusted gross income. The calculator follows these steps and shows each one so you can check your tax software’s result.
Common questions about the results
- Why is my total tax higher than the income tax alone? Self-employment tax is a separate 15.3% layer on top of income tax; employees pay half of it through payroll withholding and their employer pays the other half.
- Why is the percentage lower than 15.3% of profit? Because the tax applies to 92.35% of net profit, the effective rate is about 14.1%.
- How much should I save? Many freelancers set aside 25% to 30% of each payment. The "set aside" percentage in the results gives you a number based on your inputs.