Self-Employment Tax Guide: What Freelancers and Contractors Must Know
Self-employment tax is 15.3% (12.4% Social Security + 2.9% Medicare) on 92.35% of net self-employment income. Social Security applies to the first $176,100 in 2026, with a 0.9% Medicare surtax above $200,000 single / $250,000 married, and it is owed on net earnings of $400 or more.
What Is Self-Employment Tax?
Self-employment (SE) tax is the equivalent of Social Security and Medicare taxes (FICA) for people who work for themselves. When you're an employee, your employer pays half (7.65%) and you pay half (7.65%). As a self-employed individual, you pay both halves — totaling 15.3% — because you are both the employer and employee. However, you can deduct the employer-equivalent half when calculating your adjusted gross income.
How SE Tax Is Calculated
SE tax is calculated on 92.35% of your net self-employment income (gross receipts minus allowable business expenses). The 12.4% Social Security portion applies to the first $176,100 of net earnings in 2026. The 2.9% Medicare portion applies to all net earnings, with an additional 0.9% surtax on earnings above $200,000 (single) or $250,000 (married). You must pay SE tax if your net earnings are $400 or more in a year.
Business Deductions That Lower SE Tax
Every legitimate business expense reduces your net self-employment income and therefore your SE tax. Common deductions include: home office (simplified or regular method), business vehicle mileage, health insurance premiums, retirement plan contributions (SEP IRA, Solo 401(k)), business supplies and equipment, professional services, advertising, and a portion of your internet and phone bills. Keep detailed records and receipts — deductions must be ordinary and necessary for your business.
Quarterly Estimated Tax Payments
Self-employed individuals typically pay quarterly estimated taxes covering both income tax and SE tax. The due dates are April 15, June 15, September 15, and January 15. To calculate quarterly payments: estimate your annual net income, calculate SE tax and income tax on that amount, subtract any expected credits, and divide by 4. Use IRS Direct Pay or EFTPS for electronic payments. Form 1040-ES includes worksheets to help with calculations.
Retirement Plans for the Self-Employed
Retirement plans are one of the best ways to reduce your tax burden as a self-employed person. A Solo 401(k) allows contributions up to $23,000 (2026) in employee deferrals plus 25% of net earnings as employer contributions, with total limits of $69,000+. A SEP IRA allows contributions up to 25% of net earnings, up to $69,000. Both reduce your taxable income and therefore your SE tax exposure. Start a plan early and contribute consistently.
Frequently Asked Questions
Is self-employment tax the same as income tax?
No. Self-employment tax is the Social Security (12.4%) and Medicare (2.9%) equivalent that you pay as both employer and employee, totaling 15.3% on 92.35% of net earnings. Income tax is separate and calculated on your taxable income after deductions. You pay both, and both are covered by quarterly estimated payments.
Can I deduct half of my self-employment tax?
Yes. You can deduct 50% of your self-employment tax as an above-the-line adjustment to income on Form 1040. This reduces your adjusted gross income and your income tax — though it does not reduce the self-employment tax itself.
Do I pay self-employment tax on rental income?
Generally no, for passive rental income — it is not subject to self-employment tax. However, if you provide substantial services to tenants (like a hotel or B&B), the income may be considered an active business and subject to SE tax. Consult a tax professional for your specific situation.
How do I avoid underpayment penalties as a freelancer?
Pay quarterly estimated taxes on time (April 15, June 15, September 15, January 15) and meet a safe harbor: pay 100% of last year's tax (110% if your AGI exceeds $150,000) or 90% of this year's tax. Keeping 25–30% of each payment in a separate tax account helps ensure you have funds available.