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%.
Self-employment tax is the equivalent of FICA for people who work for themselves — freelancers, independent contractors, sole proprietors, and partners. Since there is no employer to pay half, self-employed workers pay both shares: 12.4% for Social Security and 2.9% for Medicare, totaling 15.3%.
The tax applies to net self-employment earnings of $400 or more. Before calculating the tax, you multiply net earnings by 92.35% (0.9235) to approximate the amount that would be considered wages. This adjustment accounts for the fact that employees do not pay FICA on the employer's share.
The IRS lets you deduct the employer-equivalent half of self-employment tax (7.65% of the SE tax base) as an above-the-line deduction, which reduces your AGI and income tax. Self-employment tax is calculated on Schedule SE and paid along with your income tax when you file your return.
How it works
Self-employment tax is the FICA equivalent for people who work for themselves — freelancers, independent contractors, sole proprietors, and partners. Because there is no employer to pay half, self-employed workers owe both shares directly: 12.4% for Social Security and 2.9% for Medicare, for a combined rate of 15.3%. It applies once net self-employment earnings reach $400 or more in a year, a much lower threshold than most people expect.
You calculate self-employment tax on Schedule SE, which is filed alongside your regular Form 1040. Before applying the 15.3% rate, you first multiply your net self-employment earnings by 92.35% to get the SE tax base — this adjustment mirrors the fact that employees never pay FICA on the employer's matching share. The resulting self-employment tax is added to your income tax liability, and unlike FICA on a W-2 job, it is not automatically withheld from anything, so it typically factors into your quarterly estimated tax payments.
A key relief valve is that you can deduct the employer-equivalent half of self-employment tax — 7.65% of the SE tax base — as an above-the-line deduction on your income tax return, which lowers your AGI even though it does not reduce the self-employment tax itself. It is common for new freelancers to forget that self-employment tax is calculated separately from and in addition to income tax, so their total tax owed can be meaningfully higher than an income-tax-only estimate would suggest, which is why many underestimate their first year of estimated payments.
Example: self-employment tax on freelance income
A freelancer has $80,000 in net self-employment income for the year, with no employer to split the cost of FICA.
The SE tax base is 92.35% of $80,000, or $73,880. Self-employment tax at 15.3% on that base comes to $11,303.64. The freelancer then deducts half of that amount, $5,651.82, as an above-the-line deduction when calculating their income tax.
Frequently asked questions
Who has to pay self-employment tax?
How is self-employment tax different from FICA?
Can I deduct any of my self-employment tax?
Related Terms
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.
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.
Schedule C
The IRS form (Schedule C of Form 1040) used by sole proprietors and single-member LLCs to report business income and expenses. The net profit flows to your personal tax return.
Quarterly Estimated Tax
Tax payments made four times a year by self-employed individuals and others with income not subject to withholding. Due dates are April 15, June 15, September 15, and January 15.