The self-employment tax rate is 15.3% of your net earnings
Self-employment tax covers Social Security and Medicare for people who work for themselves. The rate is fixed at 15.3%: 12.4% goes to Social Security and 2.9% goes to Medicare. You calculate it on your net earnings — that is, your business income minus business expenses and a deduction for half of your self-employment tax itself.
If you are an employee at a regular job, your employer pays half of your Social Security and Medicare tax, and you pay the other half from your paycheck. When you are self-employed, you pay both halves yourself, which is why the rate looks high. The self-employment tax is separate from income tax; you owe both.
You generally owe self-employment tax if your net earnings from self-employment are $400 or more in a year. This includes income from a side business, freelance work, or a partnership where you are actively involved.
Key Takeaways
- Self-employment tax is 15.3% total: 12.4% for Social Security and 2.9% for Medicare, calculated on your net business earnings.
- You pay both the employee and employer portions yourself, unlike W-2 employees whose employers cover half.
- The threshold for owing self-employment tax is $400 or more in net earnings from self-employment in a tax year.
- You can deduct half of your self-employment tax payment when you calculate your adjusted gross income on your tax return.
- Self-employment tax is separate from federal income tax; you owe both if your income is high enough.
How to calculate your self-employment tax
Start with your net profit from self-employment — the money you made minus legitimate business expenses. This is the number from Schedule C (Form 1040) if you file taxes, or the bottom line of your business accounting if you do not yet file.
Multiply your net profit by 92.35%. This accounts for the deduction of half your self-employment tax. Then multiply that result by 15.3%. The number you get is your self-employment tax for the year.
For example: if your net self-employment income is $50,000, multiply by 0.9235 to get $46,175. Then multiply $46,175 by 0.153 to get $7,065 in self-employment tax. You would owe this on top of any federal income tax.
When you file taxes as self-employed
You report self-employment tax on Schedule SE (Form 1040), which is part of your federal tax return. You fill in your net profit from Schedule C, the form where you report business income and expenses.
If your net self-employment income is less than $400, you do not file Schedule SE and do not owe self-employment tax, though you may still owe income tax on that money. If it is $400 or more, you must file Schedule SE even if you do not otherwise have to file a tax return.
The self-employment tax you calculate on Schedule SE goes on your main tax return (Form 1040). You also get to deduct half of it as an adjustment to income, which lowers your taxable income slightly.
Self-employment tax and quarterly payments
If you expect to owe $1,000 or more in federal taxes (income tax plus self-employment tax combined) for the year, the IRS expects you to pay quarterly estimated taxes. These are payments you make four times a year — usually in April, June, September, and January — rather than waiting until you file your return.
To estimate your quarterly payment, add up the income tax and self-employment tax you expect to owe for the year, then divide by four. You can use IRS Form 1040-ES to calculate this, or work with a tax professional.
If you do not pay quarterly and end up owing a large amount at tax time, you may owe a penalty for underpayment. The penalty is small but adds up if you are significantly short. Paying quarterly also spreads the burden across the year instead of one large bill in April.
Social Security earnings cap and Medicare tax
The Social Security portion of self-employment tax (12.4%) only applies to earnings up to a certain limit. That limit changes each year; for 2024 it is $168,600. Any earnings above that cap do not have the 12.4% Social Security tax applied to them.
The Medicare portion (2.9%) has no earnings cap — you pay it on all your net self-employment income. However, if your total income (including wages from a job) exceeds certain thresholds, you owe an additional 0.9% Medicare tax. Those thresholds are $200,000 for single filers and $250,000 for married filing jointly.
This means a high-earning self-employed person might pay 15.3% on income up to the Social Security cap, then 2.9% on income between the cap and the Medicare threshold, then 3.8% on income above the Medicare threshold.
Deducting business expenses lowers your self-employment tax
Your self-employment tax is calculated on net earnings, not gross revenue. This means every legitimate business expense you deduct reduces the amount of self-employment tax you owe.
Common deductible expenses include office supplies, equipment, vehicle mileage, home office space, professional services, and business insurance. Keep receipts and records for everything you deduct. The IRS may ask for proof if you are audited.
Because self-employment tax is 15.3%, reducing your net income by $1,000 in deductions saves you about $153 in self-employment tax alone (plus whatever income tax savings you get). This is why tracking expenses carefully matters more for self-employed people than it does for employees.
Self-employment tax and state taxes
Self-employment tax is a federal tax only. Some states also tax self-employment income, but the rate and rules vary widely. A few states have no income tax at all, while others tax self-employment income the same way they tax wages.
Check your state's tax authority website or work with a tax professional to understand what you owe in your state. State self-employment tax is separate from the federal 15.3% and is not deductible against federal taxes.
Frequently Asked Questions
Do I owe self-employment tax if I have a side hustle?
Yes, if your net income from the side work is $400 or more in a year. This includes freelance work, selling items online, consulting, or any other self-employment income. You report it on Schedule C and calculate self-employment tax on Schedule SE.
Can I deduct my self-employment tax?
You can deduct half of it as an adjustment to your gross income, which lowers your taxable income. The other half is part of your tax obligation. This deduction appears on Form 1040 and reduces your adjusted gross income.
What if I also have a W-2 job?
You still owe self-employment tax on your self-employment income. However, if you paid Social Security tax as an employee on wages, you may be able to reduce your self-employment tax if your total earnings exceed the Social Security cap. The IRS Form 1040-SE handles this calculation.
Do I have to pay quarterly estimated taxes?
Only if you expect to owe $1,000 or more in total federal taxes for the year. If your self-employment income is small or you have significant deductions, you might not hit that threshold. Use Form 1040-ES to estimate what you will owe.
What happens if I do not pay self-employment tax?
The IRS will assess penalties and interest on the unpaid amount. You also may not receive credit toward Social Security benefits for that year's earnings. It is better to file your return and pay what you owe, even if you cannot pay in full — you can set up a payment plan with the IRS.