Calculate self-employment taxes including Social Security and Medicare for freelancers and independent contractors.
Last reviewed: May 2026
Self-employment tax is the Social Security and Medicare tax that self-employed individuals pay on their net earnings. Unlike traditional employees who split these taxes 50/50 with their employer, self-employed workers pay both the employer and employee portions — a combined rate of 15.3% on the first $168,600 of net earnings (2024 threshold, adjusted annually for inflation) and 2.9% on earnings above that amount.1
The tax applies to anyone who earns $400 or more in net self-employment income during the year. This includes freelancers, independent contractors, sole proprietors, general partners, and members of LLCs taxed as sole proprietorships or partnerships. It also applies to gig economy workers — rideshare drivers, food delivery couriers, and platform-based service providers all owe self-employment tax on their net earnings.
Self-employment tax is separate from income tax. You owe both. A freelancer earning $80,000 net pays approximately $12,240 in self-employment tax plus federal income tax on their adjusted gross income. Many new freelancers are shocked by their first tax bill because they did not account for the self-employment tax component, which has no equivalent in traditional W-2 employment where it is automatically withheld.
It is important to understand that self-employment tax funds the same programs as FICA taxes for employees: Social Security retirement and disability benefits, and Medicare health insurance. Your SE tax payments build your Social Security earnings record, which determines your future retirement benefits. Each year you earn above the minimum threshold ($1,730 per quarter in 2024) counts as a credit toward Social Security eligibility, and higher earnings increase your benefit amount. This means SE tax is not simply a cost — it is building a foundation for future benefits, though at a steeper immediate rate than W-2 workers experience.
The IRS uses a specific formula to calculate self-employment tax. First, multiply your net self-employment earnings by 92.35% (0.9235). This adjustment exists because employers deduct half of FICA taxes as a business expense — the IRS gives self-employed individuals an equivalent reduction. Then apply the tax rates to the adjusted amount:
Step 1: Net SE Income × 0.9235 = Taxable SE Earnings
Step 2: Taxable SE Earnings × 12.4% = Social Security Tax (up to the wage base limit)
Step 3: Taxable SE Earnings × 2.9% = Medicare Tax (no income cap)
Step 4: Social Security Tax + Medicare Tax = Total SE Tax
For example, if your net self-employment income is $100,000: $100,000 × 0.9235 = $92,350 taxable. Social Security: $92,350 × 12.4% = $11,451. Medicare: $92,350 × 2.9% = $2,678. Total SE tax: $14,129. You can then deduct half of the SE tax ($7,065) from your adjusted gross income on Form 1040, reducing your income tax liability.2
| Component | Employee Rate | Employer Rate | Combined SE Rate |
|---|---|---|---|
| Social Security | 6.2% | 6.2% | 12.4% |
| Medicare | 1.45% | 1.45% | 2.9% |
| Additional Medicare (over $200K) | 0.9% | — | 0.9% |
| Total (under $168,600) | 7.65% | 7.65% | 15.3% |
The Social Security wage base adjusts annually. For 2024, the cap is $168,600 — earnings above this amount are not subject to the 12.4% Social Security portion but are still subject to the 2.9% Medicare tax. High earners above $200,000 (single) or $250,000 (married filing jointly) also pay an additional 0.9% Medicare surtax.3
| Net SE Income | 92.35% Adjustment | Social Security Tax | Medicare Tax | Total SE Tax | Effective Rate |
|---|---|---|---|---|---|
| $25,000 | $23,088 | $2,863 | $670 | $3,532 | 14.1% |
| $50,000 | $46,175 | $5,726 | $1,339 | $7,065 | 14.1% |
| $75,000 | $69,263 | $8,589 | $2,009 | $10,597 | 14.1% |
| $100,000 | $92,350 | $11,451 | $2,678 | $14,129 | 14.1% |
| $150,000 | $138,525 | $17,177 | $4,017 | $21,194 | 14.1% |
| $200,000 | $184,700 | $20,906 | $5,356 | $26,262 | 13.1% |
| $300,000 | $277,050 | $20,906 | $8,034 | $28,941 | 9.6% |
Note: Effective rate decreases at higher incomes because Social Security tax is capped. Additional Medicare surtax on incomes over $200K not included.
Half of SE tax deduction: The IRS allows you to deduct 50% of your self-employment tax as an adjustment to income on Form 1040, Line 15. This is an "above the line" deduction — you get it even if you take the standard deduction.
Qualified Business Income (QBI) deduction: Under Section 199A, many self-employed individuals can deduct up to 20% of qualified business income, subject to income limits and business type restrictions. For a sole proprietor earning $80,000 net, this could reduce taxable income by up to $16,000.4
Home office deduction: If you use part of your home exclusively and regularly for business, you can deduct a portion of rent, mortgage interest, utilities, insurance, repairs, and depreciation. The simplified method allows $5/sq ft up to 300 sq ft ($1,500 max). The regular method requires calculating the percentage of your home used for business and applying it to actual expenses, which often yields a larger deduction but requires more detailed record-keeping.
Health insurance premiums: Self-employed individuals can deduct 100% of health, dental, and long-term care insurance premiums for themselves and their family as an adjustment to income. This is one of the most valuable deductions available, potentially saving thousands per year. The deduction is limited to your net self-employment income and cannot be claimed if you were eligible for an employer-subsidized health plan through a spouse's job or another employer.
Retirement contributions: SEP-IRA (up to 25% of net SE earnings, max $69,000 for 2024), Solo 401(k) (up to $23,000 employee + 25% employer contribution), and SIMPLE IRA options reduce both income tax and effective tax burden.
Self-employed individuals must make quarterly estimated tax payments if they expect to owe $1,000 or more in taxes for the year. These payments cover both income tax and self-employment tax. The quarterly due dates are April 15, June 15, September 15, and January 15 of the following year. Missing payments triggers an underpayment penalty calculated on the shortfall for each quarter.5
The safest approach is to pay either 100% of last year's total tax liability (110% if AGI exceeded $150,000) or 90% of the current year's expected liability — whichever is smaller. Many freelancers set aside 25–30% of every payment received into a separate savings account dedicated to quarterly taxes.
To calculate your quarterly payment, estimate your total annual income and SE tax, add your expected income tax, subtract any credits, and divide by four. If your income is uneven — common for freelancers and seasonal businesses — you can use the annualized income installment method (Form 2210, Schedule AI) to adjust payments based on when income was actually earned rather than dividing equally across quarters.
The most significant financial difference between self-employment and traditional W-2 employment is the tax burden. A W-2 employee earning $100,000 pays 7.65% ($7,650) in FICA taxes, with their employer paying the matching $7,650. A self-employed person earning the same $100,000 net pays the full 15.3% — approximately $14,129 after the 92.35% adjustment.
However, the self-employed individual gets two offsetting benefits: the deduction for half of SE tax (reducing AGI by about $7,065) and the potential Qualified Business Income deduction (up to $20,000). After accounting for these deductions, the net tax difference between W-2 and self-employment at the $100,000 level is roughly $3,000–$5,000 — significant, but not as dramatic as the raw rate comparison suggests.
Self-employed workers also gain access to deductions unavailable to W-2 employees: home office, business mileage (67 cents/mile for 2024), equipment depreciation, professional development, business travel, and health insurance premiums. Aggressive but legitimate deduction of these expenses can substantially reduce net SE income and the resulting tax bill.
One of the most powerful tax strategies for self-employed individuals earning above $50,000–$60,000 net is electing S-Corporation tax treatment. With an S-Corp, you pay yourself a reasonable salary (subject to FICA/SE tax) and take remaining profits as shareholder distributions, which are not subject to self-employment tax.
For example, if your business nets $120,000 and you set a reasonable salary at $70,000, only the $70,000 is subject to FICA taxes ($10,710). The remaining $50,000 in distributions avoids SE tax entirely, saving approximately $7,065 compared to paying SE tax on the full amount. However, S-Corp election involves additional costs — payroll processing ($500–$2,000/year), a separate tax return (Form 1120-S, $500–$1,500 to prepare), and stricter compliance requirements. The break-even point where S-Corp savings exceed its costs is typically around $50,000–$60,000 in net self-employment income.
→ Track every deductible expense. Every dollar of legitimate business deduction reduces your SE taxable income. Use accounting software (QuickBooks Self-Employed, Wave, FreshBooks) to categorize expenses in real time rather than scrambling at year-end.
→ Set aside 25–30% of income for taxes. Create a separate savings account and transfer a percentage of every payment received. This prevents the shock of a large tax bill and ensures you can cover quarterly estimates.
→ Maximize retirement contributions. A SEP-IRA lets you contribute up to 25% of net SE earnings. This reduces both income tax and builds retirement savings — a double benefit unavailable to those who skip retirement accounts.
→ Consider S-Corp election. If your net SE income exceeds $50,000–$60,000, electing S-Corp tax treatment can save significant SE tax by paying yourself a reasonable salary (subject to FICA) while taking remaining profits as distributions (not subject to SE tax).
See also: Tax Calculator · Salary Calculator · Paycheck Calculator · Retirement Calculator