Back to Articles
Personal Tax5 min readMar 17, 2026
Understanding Self-Employment Tax
Self-employment tax is one of the biggest surprises for new entrepreneurs. Here's exactly how it works, what it covers, and how to manage it.
Self-Employment Tax Explained
What Is Self-Employment Tax?
Self-employment (SE) tax consists of Social Security and Medicare taxes for those who work for themselves.
Rate: 15.3% of net self-employment income:
- 12.4% Social Security (on first $176,100 in 2025)
- 2.9% Medicare (no cap; 3.8% over $200,000 for single)
Who Pays It?
Anyone with net self-employment income of $400 or more:
- Sole proprietors
- Independent contractors
- Freelancers
- Farmers
- Partners in a partnership
How It's Calculated
- Calculate net self-employment income (Schedule C profit)
- Multiply by 92.35% (accounts for employer-equivalent deduction)
- Multiply by 15.3%
The Deduction for SE Tax
You can deduct 50% of your SE tax from your gross income:
- Approximates the employer's share of FICA for employees
- Reduces your adjusted gross income (not just taxable income)
Combined Tax Rate for Self-Employed
Marginal income tax rate + 15.3% SE tax = effective marginal rate
In the 22% bracket: 22% + 15.3% = 37.3% marginal rate on additional self-employment income
Strategies to Reduce SE Tax
- S-Corp election (pay salary, take distributions above)
- Retirement plan contributions
- Maximize business deductions
Just started self-employment? Understanding SE tax is the first step to managing it.