Self-Employment Tax, Explained Plainly

If you've gone from a paycheck to freelancing, the first tax surprise is usually self-employment tax. It's the part nobody warns you about, and it's the reason your "take-home" feels smaller than the rate you quoted. Here's what it is, in plain words.

What self-employment tax actually is

When you work for an employer, Social Security and Medicare taxes (together, FICA) are split between you and them. You pay 7.65% out of your paycheck; your employer quietly pays the other 7.65%.

When you're self-employed, you are both the worker and the employer. So you pay both halves. That combined rate is 15.3% — 12.4% for Social Security and 2.9% for Medicare. This is separate from, and on top of, federal income tax.

The 2026 numbers

For the 2026 tax year:

• The 15.3% rate applies to your net self-employment earnings.
• The 12.4% Social Security portion only applies up to the wage base of $184,500. Earnings above that aren't subject to the Social Security piece.
• The 2.9% Medicare portion has no cap — it applies to all your net earnings.
• Self-employment tax only kicks in once your net earnings reach $400.

How it's calculated (the 92.35% quirk)

You don't pay the 15.3% on your full profit. The IRS first multiplies your net profit by 92.35%, and the tax applies to that smaller number. The idea is to mirror the employer-side deduction that regular employees effectively get.

So if you netted $80,000 in profit:

• Taxable base: $80,000 × 0.9235 = $73,880
• Social Security: $73,880 × 12.4% = $9,161
• Medicare: $73,880 × 2.9% = $2,143
• Total self-employment tax: about $11,304

This is reported on Schedule SE with your annual return.

The deduction that softens it

Here's the part that helps: you can deduct half of your self-employment tax as an above-the-line deduction on your 1040. In the example above, that's roughly $5,650 knocked off your income before income tax is calculated. It doesn't reduce the SE tax itself, but it lowers your income tax.

On top of that, most freelancers also qualify for the 20% qualified business income (QBI) deduction, which further reduces taxable income.

What to do about it

Two practical moves:

1. Set money aside as you earn. A common rule of thumb is to park 25–30% of every payment for taxes. It's rough, but it keeps you from a nasty surprise.
2. Pay it quarterly. The IRS expects estimated payments four times a year, not one lump sum in April. See our guide to quarterly estimated taxes.

The fastest way to see how this hits your numbers is to run them through our free rate & take-home calculator — it folds self-employment tax, income tax, and your own costs into the rate you actually need to charge.

---

This is general information, not tax advice. Self-employment tax interacts with your full return in ways a calculator can't fully capture — confirm your situation with a qualified tax professional.