The short answer
- Self-employment tax is 15.3% (12.4% Social Security plus 2.9% Medicare) on 92.35% of your net profit.
- Social Security stops at $184,500 of combined wages and self-employment earnings in 2026; Medicare does not.
- You deduct half of it when working out your income tax.
- Income tax comes on top. Pay both in four estimated payments: April 15, June 15 and September 15, 2026, and January 15, 2027.
What self-employment tax is
Employees pay 7.65% of their pay in Social Security and Medicare, and their employer pays another 7.65%. When you are self-employed you are both, so you pay the full 15.3%. It funds the same benefits: your Social Security retirement pension, disability cover and Medicare. Profit you report builds your Social Security record just as wages do.
Who pays it
Anyone with $400 or more of net earnings from self-employment: freelancers and contractors paid on a 1099-NEC, gig workers on delivery and ride-share apps, sole proprietors, single-member LLCs and partners in a business. It does not matter whether you also have a job, or whether you are already collecting Social Security.
$400 of net earnings is about $433 of profit, because the tax applies to 92.35% of profit: $433 × 92.35% is $399.88, just under the line.
How it is worked out
- Step 1Net profit
Business income less business expenses (Schedule C).
- Step 2× 92.35%
This mirrors the employer half being deductible for a company.
- Step 3Social Security: 12.4%
On earnings up to $184,500, less any W-2 wages you had.
- Step 4Medicare: 2.9%
On all net earnings, plus 0.9% above $200,000 ($250,000 joint).
Example: $60,000 of profit
- Net profit$60,000.00
- × 92.35% = net earnings$55,410.00
- Social Security: 12.4%$6,870.84
- Medicare: 2.9%$1,606.89
That is 14.1% of profit. Income tax is extra, as the next sections show.
The deduction for half
You deduct half of your self-employment tax as an adjustment to income, before the standard deduction. In the example that is $4,238.87, bringing adjusted gross income down to $55,761. It lowers income tax only; it does not reduce the self-employment tax itself.
Income tax on top
- Profit less half of SE tax$55,761
- Standard deduction−$16,100
- QBI deduction−$7,932
- Taxable income$31,729
- Income tax (10% and 12%)$3,559
- Self-employment tax$8,478
The total is 20.1% of profit. Most self-employed people pay more in self-employment tax than in income tax until profit reaches well into six figures. To see the whole return, use the federal income tax calculator.
The 20% QBI deduction
The qualified business income (QBI) deduction lets most sole proprietors deduct up to 20% of their business profit, after the self-employment tax deduction and self-employed retirement and health insurance. It is capped at 20% of taxable income before the deduction (less any net capital gain), which is why the example gets $7,932 rather than 20% of $55,761.
- It was made permanent by the 2025 tax law.
- From 2026 there is a minimum deduction of $400 if you have at least $1,000 of QBI from a business you actively run.
- Above $201,750 of taxable income ($403,500 joint) the deduction phases out over the next $75,000 ($150,000 joint) unless the business pays W-2 wages or owns property. Doctors, lawyers, accountants, consultants and other service businesses lose it entirely above the range.
QBI does not cut self-employment tax
Like the standard deduction, it lowers taxable income for income tax only.
The Social Security cap and W-2 wages
Social Security applies to the first $184,500 of combined wages and self-employment earnings in 2026. If you have a job too, your wages fill that base first.
- Social Security part
- $5,725.70
- Medicare part
- $1,339.08
- SE tax
- $7,064.78
- Social Security part
- $4,278.00
- Medicare part
- $1,339.08
- SE tax
- $5,617.08
With $150,000 of wages, only $34,500 of the earnings is left under the cap, so Social Security is 12.4% of $34,500.
A side gig alongside a job
A single person with a $50,000 job and $3,500 of federal tax withheld owes $3,820 for the year. Adding $10,000 of side-gig profit brings $1,412.96 of self-employment tax and raises total federal tax to $6,125.13: the side gig costs $2,305 in federal tax, 23% of its profit. With only $3,500 withheld, $2,625 is left to pay.
The easy fix
Raise the withholding on your job with a new Form W-4 (step 4(c)). Withholding counts as paid evenly through the year, so it can cover the side income without quarterly payments.
Tax at different profit levels
| Net profit | SE tax | Total federal tax | Share of profit |
|---|---|---|---|
| $10,000 | $1,413 | $1,413 | 14.1% |
| $25,000 | $3,532 | $4,103 | 16.4% |
| $50,000 | $7,065 | $9,732 | 19.5% |
| $75,000 | $10,597 | $15,495 | 20.7% |
| $100,000 | $14,130 | $22,365 | 22.4% |
| $150,000 | $21,194 | $37,608 | 25.1% |
| $200,000 | $28,234 | $53,431 | 26.7% |
| $250,000 | $29,573 | $66,360 | 26.5% |
Between $200,000 and $250,000 the share barely moves, because the Social Security part stops at the $184,500 cap. State income tax would be extra in most states.
Quarterly estimated payments
If you expect to owe $1,000 or more when you file, the IRS expects you to pay during the year. The 2026 dates are:
| Payment | Income earned | Due |
|---|---|---|
| 1 | January 1 to March 31, 2026 | April 15, 2026 |
| 2 | April 1 to May 31, 2026 | June 15, 2026 |
| 3 | June 1 to August 31, 2026 | September 15, 2026 |
| 4 | September 1 to December 31, 2026 | January 15, 2027 |
For the $60,000 example with no prior-year figure, the safe-harbor payment is $2,708.37 a quarter (90% of $12,037), and $3,009.30 a quarter covers the full bill. Pay through IRS Direct Pay, the Electronic Federal Tax Payment System or your IRS online account.
The safe harbors
You avoid the underpayment penalty if your withholding and estimated payments, paid on time, cover the smallest of:
- 90% of this year’s tax;
- 100% of last year’s tax (110% if last year’s AGI was over $150,000, or $75,000 married filing separately);
- or you owe less than $1,000 after withholding.
Last year’s figure is often the easier target, because you already know it. If the $60,000 freelancer paid $5,000 of tax last year, $1,250 a quarter is enough to avoid a penalty, with the rest due in April 2027. The penalty itself works like interest on each late or short quarter, at the IRS underpayment rate.
How much to set aside
A simple rule: move 25% to 30% of every client payment into a separate savings account, more in a state with income tax. The calculator shows the exact share for your figures. Put the money in a high-yield savings account until each due date; the savings goal calculator can help you plan the monthly amount.
Expenses that lower both taxes
Business expenses come off before self-employment tax, so each dollar saves both taxes. Common ones: equipment and software, a home office used only for work, business mileage (the IRS sets a standard rate each year), phone and internet in proportion to business use, professional fees, insurance, advertising and travel. Keep receipts and a mileage log.
Retirement plans for the self-employed
A SEP IRA or solo 401(k) lets you save far more than an IRA alone. In 2026 a solo 401(k) allows $24,500 of employee deferrals plus an employer contribution of up to 20% of net self-employment earnings (after the half-SE deduction). Contributions lower income tax, not self-employment tax.
A single freelancer with $100,000 of profit who puts $15,000 into a SEP IRA cuts total federal tax from $22,364.55 to $19,817.73, a saving of $2,546.82, while self-employment tax stays at $14,129.55. The retirement calculator shows what steady saving adds up to.
LLCs and S corporations
A single-member LLC is taxed like a sole proprietor by default, so the same rules apply. Some owners elect S corporation status: they pay themselves a reasonable salary (with payroll tax) and take the rest as distributions, which do not pay Social Security or Medicare. The saving has to cover payroll costs, a separate business return and state fees, so it tends to pay off only at higher, steady profits. Get advice before switching.
Forms you will use
- 1099-NEC and 1099-K: what clients and payment platforms report paying you.
- Schedule C: your business income and expenses.
- Schedule SE: self-employment tax.
- Form 8995: the QBI deduction.
- Form 1040-ES: quarterly estimated payments.
Report all your business income, even if you did not get a 1099 for it.
Social Security credits and benefits
Self-employment tax is not money lost. It earns Social Security credits (up to four a year) toward your retirement pension, disability and survivor benefits, and Medicare in later life. Your benefit is based on your highest 35 years of earnings, so years of low reported profit can lower it. Check your record each year in your my Social Security account at ssa.gov.
Spouses and family members
Self-employment tax is worked out for each person, even on a joint return. If you and your spouse run a business together, each of you files a Schedule SE for your share of the profit, so both build a Social Security record. Paying your own children under 18 to work in a sole proprietorship can be free of Social Security and Medicare, though the pay must be reasonable for real work.
Common mistakes
- Saving only for income tax and forgetting the 15.3% self-employment tax, which is often the bigger bill.
- Leaving out income because no 1099 arrived. Payment apps and platforms report to the IRS, and all income is taxable.
- Missing deductible costs such as business mileage, software and a home office.
- Skipping the June 15 payment: the second installment comes only two months after the first.
- Mixing business and personal spending in one account, which makes records harder to prove.
State tax for the self-employed
Most states tax your business profit as ordinary income, and many also expect quarterly estimated payments on similar dates. A few add their own business taxes: New York City’s unincorporated business tax, Portland and Multnomah County business taxes, and gross receipts taxes in states such as Washington, Ohio and Delaware. Nine states have no income tax on earnings, but some still tax business revenue. Check your state’s department of revenue for its estimated tax rules and add your state tax to the amount you set aside.