Self-Employment Tax 2026

Self-employment tax is one of the most important tax obligations for freelancers, independent contractors, and gig workers. Unlike traditional employees who split Social Security and Medicare taxes with their employer, self-employed individuals pay both halves, totaling 15.3% of net earnings. With over 70 million Americans now working as self-employed or gig workers, understanding self-employment tax is essential for anyone earning income outside of a traditional W-2 job.

Self-Employment Tax Rate

The self-employment tax rate is 15.3%, consisting of 12.4% for Social Security and 2.9% for Medicare. The Social Security portion applies to the first $176,100 of net earnings in 2025, while the Medicare portion applies to all net earnings without a cap. High earners pay an additional 0.9% Medicare surtax on earnings exceeding $200,000 for single filers or $250,000 for married couples filing jointly.

Who Owes Self-Employment Tax

You owe self-employment tax if you earn net income from self-employment of $400 or more. This includes independent contractors paid on Form 1099-NEC, freelancers, gig economy workers driving for Uber or DoorDash, sole proprietors, and single-member LLC owners. If you work as both an employee and a self-employed individual, you pay SE tax only on your self-employment income, while your employer handles the employer portion on your W-2 wages.

Net Earnings Defined

Net earnings for self-employment tax purposes are calculated as your net profit from Schedule C, which is your business income minus deductible business expenses. Self-employment tax applies to 92.35% of your net earnings, not the full amount. This adjustment accounts for the fact that the employer-equivalent portion of SE tax is deductible.

Deduction for Self-Employment Tax

You can deduct half of your self-employment tax as an adjustment to income on Schedule 1 of Form 1040. This deduction reduces your adjusted gross income and your income tax liability, though it does not reduce your actual self-employment tax obligation. The deduction represents the employer-equivalent portion of the SE tax that an employer would typically pay for a W-2 employee.

Quarterly Estimated Tax Payments

Self-employed individuals must pay estimated taxes quarterly using Form 1040-ES. Payments are due on April 15, June 15, September 15, and January 15 of the following year. If you expect to owe $1,000 or more when you file your annual return, you must make estimated payments or face underpayment penalties. The safe harbor rule lets you avoid penalties by paying 100% of last year's tax liability, or 110% if your AGI exceeded $150,000.

Business Expense Deductions

Self-employed individuals can deduct a wide range of business expenses to reduce their net earnings and SE tax liability. Common deductions include the home office deduction for space used regularly and exclusively for business, internet and phone expenses, equipment and supplies, vehicle mileage at 67 cents per mile for 2024, business software and subscriptions, professional development and education, and health insurance premiums.

Self-Employed vs W-2 Employee

The key difference is that a W-2 employee pays 7.65% in payroll taxes while their employer pays the other 7.65%. Self-employed individuals pay the full 15.3% out of their own pocket. However, self-employed individuals can deduct business expenses that W-2 employees cannot, potentially reducing their overall tax burden. Additionally, the employer-equivalent portion of SE tax is deductible, partially offsetting the higher tax rate.

Schedule C and Schedule SE

To report self-employment income, you file Schedule C along with your Form 1040 to detail your business income and expenses. Schedule SE is then used to calculate your self-employment tax liability. Both schedules are attached to your Form 1040 when you file. Using tax software simplifies this process, as it automatically calculates SE tax and transfers the information between forms.