Self-Employment Tax Explained

If you're self-employed, freelancing, or running a sole proprietorship, no employer is withholding Social Security and Medicare from your paycheck · that's what self-employment tax covers, and it catches a lot of new freelancers off guard the first time they file.

The short answer

Per the IRS, the self-employment tax rate is 15.3%, consisting of two parts: 12.4% for Social Security and 2.9% for Medicare. This is calculated on your net earnings from self-employment (roughly, your business income after deductible expenses) and is separate from — in addition to — your regular income tax.

What income it applies to

The Social Security portion (12.4%) applies up to an annual wage base limit that the IRS adjusts each year ($168,600 for 2024, per IRS guidance). Above that limit, you stop paying the Social Security portion for the year. The Medicare portion (2.9%) has no income cap · it applies to all of your net self-employment earnings, no matter how high.

There's also an Additional Medicare Tax of 0.9% that kicks in once your combined wages and self-employment income cross a threshold: $200,000 for single filers, $250,000 for married filing jointly, per the IRS. Since these thresholds and the wage base limit are adjusted annually, confirm the current year's exact figures directly on IRS.gov rather than assuming last year's numbers still apply.

How it's calculated

The IRS directs self-employed taxpayers to calculate this using Schedule SE (Form 1040). In broad terms: you take your net earnings from self-employment, apply the 15.3% rate (subject to the caps above), and the result is your self-employment tax liability — separate from, and in addition to, whatever you owe in regular income tax. Schedule SE also accounts for the fact that you can deduct half of your self-employment tax when calculating your adjusted gross income, which effectively softens the blow somewhat.

Why this trips people up

Someone leaving a W-2 job for full-time freelancing often budgets for income tax and forgets that self-employment tax exists on top of it — there's no employer quietly covering half of Social Security and Medicare anymore, like there was with a paycheck. Setting aside roughly a quarter to a third of net self-employment income for combined income tax and self-employment tax, and paying quarterly estimated taxes rather than waiting until April, is the standard way people avoid a painful surprise.

FAQ

What is the self-employment tax rate?

15.3%, made up of 12.4% for Social Security and 2.9% for Medicare, per the IRS.

Is self-employment tax the same as income tax?

No. Self-employment tax covers Social Security and Medicare, similar to what's withheld from an employee's paycheck. You still owe regular federal (and usually state) income tax on top of it.

Do I owe self-employment tax on all my self-employment income?

The Social Security portion applies up to a wage base limit that changes annually ($168,600 for 2024, per the IRS); the Medicare portion has no income cap and an additional 0.9% Medicare surtax can apply above certain income thresholds. Confirm the current year's exact figures directly on IRS.gov, since these numbers are adjusted annually.