Understanding Self-Employment Tax
Self-employment tax is Social Security and Medicare taxes for people who work for themselves. Unlike W-2 employees who split FICA with their employer, self-employed individuals pay both portions.
The total SE tax rate is 15.3% (12.4% Social Security + 2.9% Medicare) on your net self-employment income.
2026 SE Tax Rates
| Component | Rate | Wage Base |
|---|---|---|
| Social Security | 12.4% | $176,100 cap |
| Medicare | 2.9% | No cap |
| Additional Medicare | 0.9% | Over $200K single/$250K married |
The 92.35% Rule
How SE Tax Is Calculated
- Start with gross self-employment income
- Subtract business expenses = Net self-employment income
- Multiply by 92.35% = Taxable SE base
- Calculate 15.3% SE tax (or less if above SS cap)
- Deduct half of SE tax from income
Common Business Deductions
- Home office (simplified: $5/sq ft up to 300 sq ft = $1,500 max)
- Business equipment and supplies
- Professional services (accounting, legal)
- Business travel and mileage (67¢/mile for 2024)
- Internet and phone (business portion)
- Professional development and subscriptions
- Advertising and marketing
Keep Good Records
Above-the-Line Deductions
These deductions reduce both income tax AND self-employment tax:
- Half of SE tax — automatic deduction
- Self-employed health insurance — 100% deductible
- SEP IRA contributions — up to 25% of net SE income
- Solo 401(k) — up to $69,000 (2024) including catch-up
Health Insurance Limit
Quarterly Estimated Payments
Self-employed individuals must make quarterly estimated tax payments:
| Due Date | Period Covered |
|---|---|
| April 15 | Jan 1 - Mar 31 |
| June 15 | Apr 1 - May 31 |
| September 15 | Jun 1 - Aug 31 |
| January 15 | Sep 1 - Dec 31 |
Underpayment Penalty
Retirement Options for Self-Employed
| Plan | 2024 Max | Best For |
|---|---|---|
| SEP IRA | $69,000 | Simple, high limits, no employee matching required |
| Solo 401(k) | $69,000 + catch-up | Maximum contributions, loan option |
| SIMPLE IRA | $16,000 | Lower admin, if you have employees |
| Traditional IRA | $7,000 | Supplement to other plans |
Solo 401(k) Advantage
Frequently Asked Questions
Q: When do I owe SE tax?
A: If your net self-employment income is $400 or more, you must pay SE tax and file Schedule SE.
Q: Do I pay SE tax on all freelance income?
A: Yes, if it's for services. Royalties, rental income, and investment income are generally not subject to SE tax.
Q: Can I reduce SE tax?
A: Yes. Max out retirement contributions (SEP/Solo 401k), claim all legitimate business deductions, and time income/expenses strategically.
Q: S-Corp election — is it worth it?
A: An S-Corp can save SE taxes by splitting income into salary (FICA-taxed) and distributions (not). Usually worthwhile above $50-80K net income.
Q: Do I get Social Security credits?
A: Yes! SE tax contributes to your Social Security earnings record, just like W-2 wages.
Q: Can I deduct my own salary?
A: No. As a sole proprietor, you can't pay yourself a salary. Net profit is your income. (S-Corps are different.)
Tax Planning Strategies
- Max out retirement contributions before year-end
- Time equipment purchases for immediate deduction (Section 179)
- Defer income to next year if expecting lower rate
- Accelerate expenses into current year if beneficial
- Consider S-Corp election if net income exceeds $50K+
- Contribute to HSA if on high-deductible health plan
Self-employment tax rules can be complex. This calculator provides estimates. Consult a tax professional for personalized guidance, especially regarding estimated payments and entity structure.