What is self-employment tax?

FICA vs. SECA

FICA (the Federal Insurance Contributions Act) and SECA (the Self-Employment Contributions Act) fund the same two programs, Social Security and Medicare, through two different laws: one written for W-2 employees, the other for the self-employed.

Who owes self-employment tax

Anyone running a trade or business with a profit motive owes self-employment tax once net earnings hit $400 for the year, counted across everything you do. Sole proprietors, single-member LLC owners, gig workers, freelancers, and active partners all owe it. Age doesn't exempt you: retirees still owe self-employment tax on active business profit.

One exception: church employees fall under a much lower threshold, $108.28, under separate rules in IRS Publication 517.

The 15.3% rate breakdown

The 15.3% rate breaks down into two parts. Social Security takes 12.4% and funds retirement, disability, and survivor benefits. In 2026, every $1,890 of covered earnings earns you one credit, up to four a year. Most people need 40 credits over their working life to qualify.²Medicare takes the remaining 2.9%. Unlike the Social Security portion, the Medicare portion applies to every dollar of net profit with no ceiling.

The Social Security wage base cap

The 12.4% Social Security portion applies only up to a wage base that adjusts each year for inflation.

Once your net earnings pass the wage base, the rate on earnings above the wage base drops, because only the 2.9% Medicare tax still applies.

The uncapped Medicare tax and the Additional Medicare surcharge

The 2.9% Medicare tax applies to every dollar of net self-employment earnings with no ceiling. If your earnings pass $200,000 single, $250,000 married filing jointly, or $125,000 married filing separately, you owe an extra 0.9%.³You report the surcharge on Form 8959. Unlike the base tax, none of the surcharge qualifies for the 50% above-the-line deduction.

Step 1: Net Schedule C profit

Start with net business profit: gross revenue minus deductible expenses. Office supplies, software, advertising, and mileage all count. Keep a 1099 deductions checklist on hand for a fuller list of what qualifies.

Step 2: Apply the 92.35% adjustment

Multiply net profit by 92.35%, which is 100% minus the employer-equivalent share of FICA, to get your taxable self-employment base. This puts you on similar footing to a W-2 employee, who never pays income tax on the half of FICA their employer covers.

Step 3: Apply the 15.3% rate up to the wage base

Below the 2026 wage base of $184,500, apply 15.3% to your adjusted earnings. Above the wage base, apply 12.4% only to the first $184,500, then 2.9% to the full adjusted amount. Add the Social Security and Medicare amounts together for your total self-employment tax.

Step 4: The 50% above-the-line deduction

Divide your total self-employment tax by two to get your deduction, which you claim on Schedule 1. The deduction lowers your adjusted gross income and income tax, but not the self-employment tax itself.

Claim every valid Schedule C deduction

Because self-employment tax is calculated on net profit, every deduction you claim reduces the amount taxed. Mileage at the IRS mileage rate, the home office deduction, internet, and software are commonly missed write-offs worth tracking closely. The 1099 deductions list shows the Schedule C line for each write-off. If you'd rather have an app flag write-offs as they happen than go back through a year of bank statements each spring, the Keeper Tax review covers whether that automated tracking is worth its subscription.

Consider an S corp election

Electing S corp status splits income into a W-2 salary, subject to FICA, and distributions, which aren't subject to self-employment tax at all. The catch: the IRS requires "reasonable compensation" for your work, comparable to what a similar business would pay a non-owner employee. Set the salary too low, and the IRS can recharacterize distributions as wages, with back taxes and penalties attached.