SE Tax Base (92.35%)
Self-employment tax is calculated on 92.35% of net self-employment income, not the full amount. This adjustment mirrors the fact that employees do not pay FICA on the employer's share.
When calculating self-employment tax, the IRS does not apply the 15.3% rate to your full net self-employment income. Instead, you first multiply your net earnings by 92.35% (100% minus 7.65%). This reduced amount is called the SE tax base.
The reasoning behind this adjustment is fairness with W-2 employees. Employees pay FICA only on their wages, not on the employer's matching FICA contribution. By reducing the self-employment base to 92.35%, the IRS approximates this same treatment for the self-employed.
For example, if you have $100,000 in net self-employment income, your SE tax base is $92,350. Self-employment tax would be $92,350 multiplied by 15.3%, equaling $14,129.55. You then get to deduct half of that ($7,064.78) as an above-the-line deduction on your income tax return.
How it works
The SE tax base is not your full net self-employment income — it is 92.35% of it, and that reduced figure is what the 15.3% self-employment tax rate is actually applied to. The IRS built in this adjustment for fairness with W-2 employees, who only pay FICA on their wages and never on the employer's matching contribution; multiplying by 92.35% (which is 100% minus the 7.65% employee FICA rate) roughly approximates the same treatment for someone with no employer to split costs with.
You calculate the SE tax base as the first step on Schedule SE, before applying the 15.3% combined Social Security and Medicare rate. The math is mechanical: take your net self-employment earnings, multiply by 92.35%, and that product becomes the base the self-employment tax percentage is applied to — it is not an optional adjustment, every self-employed filer with $400 or more in net earnings goes through this same calculation.
People sometimes assume self-employment tax is simply 15.3% of their net earnings, which slightly overstates the real bill since the rate actually applies to the smaller 92.35% base. The distinction matters most when estimating quarterly payments — using the full net earnings figure instead of the SE tax base will overestimate the self-employment tax portion, though income tax calculated on the unreduced net earnings would still apply separately.
Example: calculating the SE tax base
You have $100,000 in net self-employment income for the year. Multiplying by 92.35% gives an SE tax base of $92,350 — not the full $100,000.
Self-employment tax at 15.3% is applied to that $92,350 base, coming to $14,129.55. Half of that amount, $7,064.78, can then be deducted as an above-the-line deduction when calculating your income tax.
Frequently asked questions
Why isn't self-employment tax calculated on my full net income?
How do I calculate my SE tax base?
Does the 92.35% adjustment reduce my income tax too?
Related Terms
Self-Employment Tax
The combined Social Security (12.4%) and Medicare (2.9%) tax paid by self-employed individuals — effectively both the employee and employer shares of FICA, totaling 15.3%.
FICA
Federal Insurance Contributions Act taxes that fund Social Security (6.2%) and Medicare (1.45%). Both employees and employers pay FICA, totaling 15.3% on wages.
Above-the-Line Deduction
Deductions subtracted from gross income to arrive at AGI, available regardless of whether you itemize. Examples include IRA contributions, student loan interest, and HSA contributions.