When you work for an employer, Social Security and Medicare taxes are split between you and the company. When you work for yourself, you owe both halves, and that combined bill is called self-employment tax. It surprises many new freelancers because it applies on top of ordinary income tax, not instead of it. Understanding how it is calculated helps you set money aside and avoid a painful shortfall at filing time.
The 15.3 percent rate
Self-employment tax is 15.3 percent, made up of 12.4 percent for Social Security and 2.9 percent for Medicare. That figure is exactly the combined employee and employer share a traditional worker splits with their company. Because you are both worker and employer, you cover the full amount yourself. The rate applies to your net self-employment earnings, not your gross revenue.
What the tax applies to
You pay on 92.35 percent of your net earnings from self-employment, a small adjustment that mirrors how the employer share works. Net earnings are your business profit, meaning revenue minus deductible business expenses, so legitimate write-offs lower this tax. The Social Security portion only applies up to an annual wage base, which was 176,100 dollars in 2025 and rose to 184,500 dollars in 2026. The Medicare portion has no cap and applies to every dollar of net earnings.
The deduction that softens it
You can deduct half of your self-employment tax when calculating your income tax, which offsets the employer share you effectively paid. This is an above-the-line adjustment, so you get it even if you take the standard deduction. It does not reduce the self-employment tax itself, only your income tax. High earners may also owe an additional 0.9 percent Medicare tax on earnings above 200,000 dollars for single filers or 250,000 dollars for joint filers.
Planning for the bill
Because no employer withholds these taxes for you, the responsibility to save falls entirely on you. A common rule of thumb is to set aside 25 to 30 percent of profit for combined self-employment and income tax, adjusting for your bracket. Keeping that money in a separate account prevents you from spending what you actually owe. Most self-employed people pay it in quarterly installments rather than a single lump at year end.
A designer nets 80,000 dollars in profit. Multiplying by 92.35 percent gives about 73,880 dollars, and 15.3 percent of that is roughly 11,300 dollars in self-employment tax. She can then deduct about 5,650 dollars, half the tax, when figuring her income tax.
Key takeaways
- Self-employment tax is 15.3 percent: 12.4 percent Social Security and 2.9 percent Medicare.
- It applies to 92.35 percent of net self-employment earnings, not gross revenue.
- The Social Security portion stops at the annual wage base; Medicare has no cap.
- You can deduct half of the tax against income tax, easing the sting.
Common mistakes
- Assuming self-employment tax replaces income tax rather than adding to it.
- Calculating the tax on gross revenue instead of net profit after expenses.
- Forgetting the deduction for half the tax, and overpaying income tax as a result.
FAQ
Do I owe self-employment tax if I have a side gig and a day job?
Yes, on the side-gig profit, though wages already taxed at your job count toward the Social Security wage base cap.
Can business deductions lower self-employment tax?
Yes. Because the tax is based on net profit, every legitimate deductible expense reduces the earnings it applies to.