If you work for yourself, you owe two federal taxes: regular income tax and self-employment tax. Many first-time freelancers are surprised by the second one. This guide explains what it is, how it is calculated, how much it can come to and how to plan for it. The examples use the same math as our self-employment tax calculator, and the page will not build if the worked examples stop matching it.
Who pays it
The IRS says you are self-employed for this purpose if you are a sole proprietor (including an independent contractor), a partner in a partnership, or otherwise in business for yourself (IRS Topic 554). Freelancers, gig workers, consultants and small business owners who file Schedule C all fall in this group. You must pay self-employment tax and file Schedule SE if your net earnings from self-employment were $400 or more (IRS: self-employment tax).
What self-employment tax pays for
Self-employment (SE) tax funds Social Security and Medicare. When you work for an employer, you and your employer each pay half of those taxes. When you are self-employed, you are both, so you pay the full 15.3%: 12.4% for Social Security and 2.9% for Medicare. The IRS states the rate on its self-employment tax page.
How it is calculated
- Start with net profit, meaning business income minus deductible business expenses.
- Multiply by 92.35%. The IRS says the amount subject to self-employment tax is generally 92.35% of your net earnings from self-employment (Topic 554). Notice that 92.35% is 100% minus 7.65%, which is half of the 15.3% rate.
- Apply 12.4% to the result, up to the 2026 Social Security wage base of $184,500, which the Social Security Administration publishes.
- Apply 2.9% to all of it, plus an extra 0.9% Additional Medicare Tax above a threshold that depends on filing status: $200,000 for single and head of household filers and $250,000 for married couples filing jointly.
These are the same steps as the lines on the IRS's Schedule SE form. In the 2025 version, line 4a multiplies by 92.35%, line 4c says that if the result is less than $400 you do not owe self-employment tax, line 10 applies 12.4% to the smaller of your earnings and the wage base left after any wages, line 11 applies 2.9%, and line 13 is the deduction for half of the tax (Schedule SE (Form 1040)). The 2026 form was not yet published when we checked.
Worked example, by hand: $80,000 of net profit, single filer
| Step | Working | Result |
|---|---|---|
| Net earnings | $80,000 × 92.35% | $73,880.00 |
| Social Security part | $73,880.00 × 12.4% (under the wage base) | $9,161.12 |
| Medicare part | $73,880.00 × 2.9% | $2,142.52 |
| Self-employment tax | $9,161.12 + $2,142.52 | $11,303.64 |
| Deduction for half | $11,303.64 × 50% | $5,651.82 |
| Adjusted gross income | $80,000 − $5,651.82 | $74,348.18 |
| Taxable income | $74,348.18 − $16,100 standard deduction | $58,248.18 |
| Federal income tax | 2026 brackets, single | $7,526.60 |
Result: with $80,000 of net profit, net earnings are $73,880. SE tax is $11,304, of which $5,652 (half) is deductible when calculating income tax. A single filer then owes about $7,527 in federal income tax, for a combined federal total near $18,830. That is 23.5% of the profit. This example ignores the qualified business income deduction and other deductions, which could lower the income tax.
The deduction for half of SE tax
You may deduct one-half of your SE tax when working out adjusted gross income (IRS Topic 554). It does not lower the SE tax itself, but it lowers your income tax. It is part of the way the tax system treats self-employed people similarly to employees, whose employers deduct their half as a business expense. The IRS notes that wage earners cannot deduct their Social Security and Medicare taxes, while the self-employed can deduct the employer-equivalent portion of theirs (IRS: self-employment tax).
How much it comes to at different incomes
Below the Social Security wage base, SE tax is a flat 14.1% of your profit (15.3% of 92.35%). Above it, the 12.4% part stops, so the tax per extra dollar falls. The table shows a single filer with no other income, the standard deduction only, and no state tax.
| Net profit | SE tax | SE tax as a share of profit | Federal income tax | Total federal | Share of profit |
|---|---|---|---|---|---|
| $20,000 | $2,826 | 14.1% | $249 | $3,075 | 15.4% |
| $40,000 | $5,652 | 14.1% | $2,281 | $7,933 | 19.8% |
| $60,000 | $8,478 | 14.1% | $4,511 | $12,989 | 21.6% |
| $80,000 | $11,304 | 14.1% | $7,527 | $18,830 | 23.5% |
| $120,000 | $16,955 | 14.1% | $15,705 | $32,660 | 27.2% |
| $200,000 | $28,234 | 14.1% | $33,346 | $61,580 | 30.8% |
| $250,000 | $29,851 | 11.9% | $46,572 | $76,424 | 30.6% |
At $250,000 of profit, net earnings of $230,875 are above the $184,500 wage base, so the 12.4% part stops at $22,878. The Medicare part continues on everything, and an Additional Medicare Tax of $278 applies to the amount above $200,000.
A side business on top of a job
If you also earn wages, the Social Security wage base is shared. The IRS says that if your wages and tips are subject to Social Security tax and total at least the wage base, you do not pay the 12.4% part on your net earnings, although all of it is still subject to the 2.9% Medicare part (IRS: self-employment tax). If your wages use only part of the wage base, the rest is still available for your self-employment earnings (line 9 of Schedule SE subtracts your Social Security wages from the wage base). For a single filer:
| Situation | Social Security part (12.4%) | Medicare part (2.9%) | Additional Medicare | SE tax |
|---|---|---|---|---|
| Side business only | $3,435 | $803 | $0 | $4,239 |
| Job paying $60,000 plus the side business | $3,435 | $803 | $0 | $4,239 |
| Job paying $170,000 plus a $40,000 business | $1,798 | $1,071 | $62 | $2,932 |
The first two rows have the same SE tax, because a $60,000 job leaves plenty of the wage base unused. In the third row the job has used up $170,000 of the $184,500, so only $14,500 of the business earnings faces the 12.4% part. Your employer still withholds Social Security and Medicare from the wages, so the job itself needs no estimated payments.
The Additional Medicare Tax
Above a threshold, an extra 0.9% applies to wages and self-employment income together. The IRS lists the thresholds as $250,000 for married filing jointly, $125,000 for married filing separately, and $200,000 for single, head of household and qualifying widow(er) filers. For self-employment income, the threshold is reduced by your wages first. The IRS gives an example: a single filer with $130,000 of wages and $145,000 of self-employment income has a threshold of $70,000 for the self-employment income ($200,000 less the wages), so the tax applies to $75,000 of it (IRS: Questions and answers for the Additional Medicare Tax). That is $75,000 × 0.9% = $675, and our calculator returns the same amount for that case. You report it on Form 8959.
Paying quarterly estimated taxes
No one withholds tax from self-employment income, so the IRS expects you to pay during the year. The IRS says individuals, including sole proprietors, generally have to make estimated payments if they expect to owe $1,000 or more when their return is filed (IRS: estimated taxes). For a calendar-year taxpayer the four due dates for 2026 are April 15, June 15 and September 15, 2026, and January 15, 2027, as listed in IRS Publication 505. A simple approach is to divide your estimated annual tax by four. The $80,000 example works out to roughly $4,708 a quarter for federal taxes.
The IRS says most taxpayers avoid an underpayment penalty if they owe less than $1,000 after withholding and credits, or if they paid at least 90% of this year's tax or 100% of last year's tax, whichever is smaller. If last year's adjusted gross income was more than $150,000, the second figure is 110% of last year's tax (Publication 505). Confirm the rule that applies to you.
How to work out and pay each quarter
- Figure it. The IRS says individuals generally use Form 1040-ES to figure estimated tax, and that your prior-year return is a helpful guide. If you guessed your earnings too high or too low, complete the worksheet again to refigure the next quarter.
- Pay it. The IRS points to IRS.gov/payments for the full list of ways to pay. It says you can pay weekly, monthly or whenever it is easiest, as long as enough has been paid by the end of each period.
- Watch the calendar. The IRS says a penalty can apply if you do not pay enough by each due date, even if you are due a refund when you file.
Ways to reduce what you owe
- Deduct business expenses such as software, equipment, professional fees and a portion of home-office costs where eligible. They lower net profit, and so both taxes.
- Save for retirement in a plan for the self-employed. The IRS lists several, including SEP and 401(k) plans, on its page Retirement plans for self-employed people. Contribution limits change each year, so check that page for the current figures.
- Ask about the QBI deduction. The IRS says many owners of sole proprietorships may be eligible to deduct up to 20 percent of their qualified business income (IRS: qualified business income deduction).
- Check the health insurance deduction. The IRS notes a deduction for the cost of health insurance for self-employed individuals, taken into account when figuring net earnings from self-employment (IRS: self-employment tax).
- Keep good records all year so nothing legitimate is missed.
Our calculator does not apply the QBI, health insurance or retirement deductions, so it can overstate your income tax if they apply to you. It is a planning estimate, not a return.
Do not forget your state
Most states also tax self-employment income. Some have no income tax and others charge a flat or graduated rate. Enter your state's effective rate in the calculator for a fuller picture.
Common mistakes to avoid
- Spending the whole payment. Money that arrives without withholding is not all yours. Move a share into a separate account as each payment comes in.
- Forgetting SE tax when budgeting. At $80,000 of profit the SE tax alone is $11,304, before any income tax.
- Skipping estimated payments and paying it all in April. You can face an underpayment penalty even if you are owed nothing extra at filing.
- Missing deductible expenses because records were not kept.
- Assuming a job's withholding covers the side business. Withholding covers the wages. The side income needs its own plan.
Next steps
Run your own numbers in the self-employment tax calculator. Compare with employee pay using the paycheck calculator, and see how 2026 tax brackets apply. If you plan to buy a home, read how lenders treat your net profit in the self-employed mortgage guide.
Sources and review
All rates and rules above come from the IRS and the Social Security Administration: self-employment tax, Topic 554, Schedule SE (Form 1040), the Additional Medicare Tax Q&A, estimated taxes, Publication 505 (tax withholding and estimated tax), retirement plans for the self-employed, the QBI deduction and the Social Security contribution and benefit base. Income tax uses the 2026 brackets and standard deduction on our methodology page. Last reviewed September 2026. This is general information, not tax advice.