If you’ve ever finished your first year of freelancing and been surprised by a tax bill bigger than expected, self-employment tax is probably the reason. It’s separate from income tax, it applies even when you owe little income tax, and many new freelancers don’t know it exists until filing season.
This guide explains what self-employment tax is, how it’s calculated, and what you can do to keep it manageable.
What Is Self-Employment Tax?
When you work for an employer, Social Security and Medicare taxes are split between you and the company. Each pays half, and your share comes out of your paycheck automatically.
When you work for yourself, you are both the employee and the employer, so you pay both halves. That total is called self-employment tax, and it funds your future Social Security and Medicare benefits.
The IRS explains the rules on its Self-Employment Tax page.
The Self-Employment Tax Rate
The rate is 15.3%, made up of two parts:
- 12.4% for Social Security, applied only up to an annual earnings limit (the Social Security wage base, which adjusts each year).
- 2.9% for Medicare, applied to all net earnings with no cap.
High earners may also owe an Additional Medicare Tax of 0.9% on income above certain thresholds, which depend on your filing status.
Who Has to Pay It?
You generally owe self-employment tax if your net earnings from self-employment are $400 or more for the year. That includes:
- Freelancers and independent contractors who receive Form 1099-NEC
- Gig workers (rideshare, delivery, task platforms)
- Sole proprietors and single-member LLC owners
- Partners in a partnership
If you’re unsure whether you’re classified as a contractor or an employee, see our guide on 1099 vs. W-2 before you file.
How to Calculate Self-Employment Tax
The calculation is done on Schedule SE and follows these steps:
- Find your net profit. Take your business income and subtract your business expenses.
- Multiply by 92.35%. The IRS lets you apply the tax to only 92.35% of your net profit, which roughly mirrors the employer-side deduction a regular employee setup would have.
- Multiply by 15.3%. The result is your self-employment tax.
Example
Say you earned $60,000 in freelance income and had $0 in other adjustments, so your net profit is $60,000.
- $60,000 × 92.35% = $55,410
- $55,410 × 15.3% = $8,477.73 in self-employment tax
That’s before any federal income tax. It’s why setting money aside throughout the year matters so much.
The Self-Employment Tax Deduction
There’s some good news. You can deduct half of your self-employment tax from your income when calculating your income tax. In the example above, that’s about $4,238.87.
This deduction is taken on Schedule 1 of Form 1040. It doesn’t reduce the self-employment tax itself, but it lowers your taxable income.
How to Lower Your Self-Employment Tax
You can’t avoid the tax, but you can reduce how much of your income it applies to:
- Track every legitimate business expense. Lower net profit means lower self-employment tax. Review our guide to freelance tax deductions so you don’t miss any.
- Claim the home office deduction if you qualify.
- Contribute to a retirement plan. Contributions to a SEP IRA or Solo 401(k) lower your income tax, though not your self-employment tax. Our comparison of SEP IRA vs. Solo 401(k) can help you pick one.
- Keep clean records. Use accounting software or a simple spreadsheet so your net profit is accurate, not overstated.
Paying Self-Employment Tax Through the Year
Because no one withholds taxes from your payments, the IRS expects you to pay as you earn, usually through quarterly estimated payments. Read our full explanation of quarterly estimated taxes, and our guide on how much to set aside from each payment, so you aren’t hit with a lump sum or an underpayment penalty.
Frequently Asked Questions
Do I owe self-employment tax if I also have a W-2 job?
Yes. If your side income from freelancing is $400 or more in net earnings, you owe self-employment tax on that income, even if your day job already withholds Social Security and Medicare.
Is self-employment tax the same as income tax?
No. Income tax is based on your taxable income and tax bracket. Self-employment tax covers Social Security and Medicare and is calculated separately.
Can I avoid self-employment tax with an LLC?
A standard single-member LLC is taxed like a sole proprietorship, so you still owe it. Some businesses elect S corporation status, which changes how income is taxed, but that decision involves payroll and compliance rules, so talk with a tax professional first.
Final Thoughts
Self-employment tax is one of the biggest costs of working for yourself, but it’s predictable. Once you understand the 15.3% rate and the 92.35% adjustment, you can estimate what you’ll owe and plan ahead.
This article is for general information only and isn’t tax advice. Tax rules change, so check IRS.gov or consult a qualified tax professional for your situation.
Last Update: October 2, 2026