How self-employment tax differs from income tax
Self-employment tax and federal income tax are two separate obligations. Self-employment tax funds Social Security and Medicare, while income tax is based on your taxable income and tax bracket, so you may owe both on the same business profit.
| Self-employment tax | Federal income tax | |
|---|---|---|
| What it funds | Social Security and Medicare | General federal programs |
| Rate | Generally 15.3% | Graduated tax rates |
| Applies to | Net earnings from self-employment | Taxable income from all sources |
| Reported on | Schedule SE | Form 1040 and related schedules |
Source: Internal Revenue Service
Self-employment tax requirements
You may owe self-employment tax if you’re a:
- Sole proprietor, freelancer, or independent contractor
- Gig worker
- Partner receiving self-employment income from a partnership
- Limited liability company owner treated as a sole proprietor or partner for federal tax purposes
- Church employee with $108.28 or more in covered church income
How to calculate self-employment tax
Suppose your business has $50,000 in net profit:
- Multiply $50,000 by 92.35% to find the amount subject to self-employment tax: $46,175.
- Multiply $46,175 by 15.3% to calculate about $7,065 in self-employment tax.
You can generally deduct half of that tax, or $3,533, when calculating your adjusted gross income (AGI). This lowers your income tax, not your self-employment tax.
The 12.4% Social Security portion applies only up to the annual wage base, including applicable wages and self-employment earnings. The limit is $176,100 for tax year 2025 and $184,500 for tax year 2026. The 2.9% Medicare portion has no wage cap.
An additional 0.9% Medicare tax may apply when wages and self-employment income exceed $200,000 for most individual filers, $250,000 for married filing jointly, or $125,000 for married filing separately.
How and when to pay self-employment tax
Calculate the tax on Schedule SE and report it with Form 1040. Because an employer generally isn’t withholding taxes from self-employment income, you may need to make estimated payments using Form 1040-ES.
For tax year 2026, estimated payments are generally due:
- April 15, 2026
- June 15, 2026
- September 15, 2026
- January 15, 2027
Note: If the due date falls on a weekend or federal holiday, the deadline moves to the next business day.
You generally need to make estimated payments if you expect to owe at least $1,000 after withholding and refundable credits and meet the IRS’s other payment tests.
If your business has a net loss, you generally won’t owe self-employment tax. However, an optional Schedule SE method may help some taxpayers receive Social Security credit when earnings are low.
