How self-employment tax works (brace yourself)
Here's the deal. When you have a normal job, Social Security and Medicare taxes get split between you and your employer. You each pay half. It's a nice little arrangement. Very civilized.
When you're self-employed, you are the employer. And the employee. So you pay both halves. Congratulations on your promotion.
The total rate is 15.3%. Here's the breakdown:
- 12.4% for Social Security (on the first $176,100 you earn in 2026 — after that it stops, which is the only nice thing about this)
- 2.9% for Medicare (on everything, forever, no cap, no mercy)
- 0.9% extra Medicare tax if you make over $200,000, because apparently at that point you can afford more mercy-less-ness
The 92.35% rule (a rare act of kindness)
Okay so this part is actually not terrible. You don't pay self-employment tax on 100% of your net earnings. The IRS lets you multiply your income by 92.35% first. Why? Because when you have an employer, they get to deduct their half of FICA as a business expense. The IRS is giving you the same break.
Is it generous? No. Does it help a little? Sure. Will it change your life? Absolutely not. But we take what we can get.
Let's do the math so you don't have to
Say you earned $100,000 freelancing and spent $20,000 on business expenses (laptop, software, that coworking space you go to so you don't lose your mind):
- Net earnings: $100,000 - $20,000 = $80,000
- Multiply by 92.35%: $80,000 × 0.9235 = $73,880
- Social Security: $73,880 × 12.4% = $9,161
- Medicare: $73,880 × 2.9% = $2,143
- Total SE tax: $11,304. Yeah.
That's $11,304 that has nothing to do with income tax. This is just the Social Security and Medicare part. Income tax is a whole separate situation. We'll get there.
Can you deduct any of this?
Partially. You can deduct halfof your self-employment tax from your adjusted gross income. In our example, that's $5,652 off your AGI.
This is what's called an "above-the-line" deduction, which is tax-person speak for "you get it no matter what, even if you don't itemize." It doesn't reduce your SE tax — that ship has sailed — but it does lower the income you pay regular income tax on. Small victories.
Wait, self-employment tax and income tax are different things?
Yep. This is the part that makes new freelancers cry a little.
Self-employment tax = Social Security + Medicare. That's it. It's a flat 15.3% and it doesn't care about your filing status or deductions or how many kids you have.
Income tax = the federal tax brackets you're used to (10%, 12%, 22%, etc.), plus state income tax if your state does that.
You pay both. The 15.3% SE tax comes on top ofyour income tax rate. This is why freelancers who made the same money as their salaried friends are somehow taking home way less. It's not your imagination. The math is just mean.
Who actually has to pay this
If your net self-employment income is $400 or more in a year, the IRS wants their cut. That includes:
- Freelancers and independent contractors (anyone who gets a 1099 instead of a W-2)
- Sole proprietors
- Partners in a partnership
- LLC members (if your LLC is taxed as a sole prop or partnership)
- Side hustlers — yes, even if it's your "little Etsy shop," if you netted $400+, surprise
The S-Corp loophole:If you elect S-Corp status, you only pay SE tax on your "reasonable salary," not on distributions. This is why your accountant friend keeps telling you to "look into an S-Corp." It genuinely can save you thousands per year once you're making $50K-60K+ in net profit. But it also comes with payroll, more paperwork, and actually paying yourself a reasonable salary (the IRS is watching).
Frequently asked questions
What is the self-employment tax rate for 2026?
15.3%. That's 12.4% for Social Security (on the first $176,100) and 2.9% for Medicare (on everything). If you make over $200,000, there's an extra 0.9% Medicare tax on top because the tax code has layers like a terrible onion.
Do I really pay self-employment tax AND income tax?
Yes. They are two separate taxes. SE tax covers Social Security and Medicare. Income tax is the federal/state brackets. You pay both. The only consolation is you can deduct half your SE tax from your income before calculating income tax. It helps, but it doesn't make it okay.
How do I pay less self-employment tax?
Three real options: (1) Track every legitimate business expense so your net earnings are as low as they should be. (2) Look into S-Corp election if your net income is above $50K-60K — it can cut your SE tax significantly. (3) Contribute to a SEP IRA or Solo 401(k), which won't reduce SE tax directly but will reduce your income tax. There is no secret hack. Anyone selling you one is lying.