If you freelance, nobody splits your payroll taxes with you. You pay both halves. That’s self-employment tax, and it surprises a lot of new freelancers because it shows up on top of regular income tax.
This guide covers what SE tax is, who owes it, how to calculate it, and the legal ways to reduce it. Tax outcomes vary by situation, so confirm the specifics with a tax professional before you file.
What Is Self-Employment Tax?
Self-employment tax is how freelancers pay into Social Security and Medicare. When you work for an employer, the company pays half of those taxes and you pay half. When you work for yourself, you’re both the employer and the employee. That means you pay both halves.
The combined rate is 15.3%. That breaks down into two parts:
- 12.4% for Social Security, which applies only up to an annual income cap.
- 2.9% for Medicare, which applies to all of your net earnings.
High earners also owe an Additional Medicare Tax of 0.9% on income above $200,000 (single filers). It applies on top of the 2.9%.
SE tax is separate from income tax. You owe both. The IRS explains the basics on its self-employment tax page.
Who Has to Pay It?
You owe this tax if you earn $400 or more in net profit from self-employment in a year. That covers most people who work for themselves:
- Freelancers and independent contractors who receive 1099s
- Sole proprietors
- Single-member LLC owners taxed as sole proprietors
- Partners in a partnership
- Gig workers and side hustlers with 1099 income
It doesn’t matter if you also have a W-2 job. Side income still counts. It also doesn’t matter if you already collect Social Security. You still owe the tax on self-employment earnings.
S Corp owners are the exception. They pay payroll tax on a reasonable salary instead of SE tax on all of their profit. Our guide to S Corps and self-employment tax covers how that works.
How to Calculate Self-Employment Tax
The math has four steps.
Step 1: Find your net profit. Take your self-employment revenue and subtract your business expenses. Every deductible expense lowers this number, so it lowers your SE tax too.
Step 2: Multiply by 92.35%. The IRS lets you treat only 92.35% of your net profit as subject to the tax. That adjustment mimics the employer-side deduction a W-2 employer gets.
Step 3: Apply the rates. Multiply that amount by 15.3%. If the amount exceeds the Social Security wage base ($184,500 for 2026, per the Social Security Administration), the 12.4% Social Security portion stops at the cap. Only the 2.9% Medicare portion applies above it.
Step 4: Deduct half. You can deduct half of your SE tax when you calculate your income tax. This deduction lowers your income tax, not your SE tax.
A worked example
Say you earn $100,000 in net profit.
- $100,000 × 92.35% = $92,350
- $92,350 × 15.3% = $14,130 in SE tax
- Half of that, $7,065, is deductible on your income tax return
The effective rate comes out to about 14.1% of your net profit.
If you also have a W-2 job
The Social Security cap applies to your combined wages and self-employment earnings. If your W-2 wages already reach the cap, you skip the 12.4% Social Security portion on your freelance income. You still owe the 2.9% Medicare portion.
Self-Employment Tax at Different Income Levels
Here’s what the tax looks like at common profit levels. These figures assume a single filer, no W-2 wages, and the 2026 Social Security wage base.
| Net Profit | Self-Employment Tax | Effective Rate |
|---|---|---|
| $40,000 | $5,650 | 14.1% |
| $60,000 | $8,480 | 14.1% |
| $80,000 | $11,300 | 14.1% |
| $100,000 | $14,130 | 14.1% |
| $150,000 | $21,195 | 14.1% |
| $200,000 | $28,235 | 14.1% |
| $250,000 | $29,850 | 11.9% |
| $300,000 | $31,605 | 10.5% |
The effective rate holds steady until your earnings pass the Social Security cap. After that, each extra dollar owes only Medicare tax, so the rate falls.
What About Income Tax?
SE tax is only one piece of your bill. You also owe federal income tax on your net profit, plus state income tax in most states. A rough rule: set aside 25% to 30% of every payment you receive to cover both. The exact number depends on your bracket and deductions.
How to File and Pay
You report self-employment tax on Schedule SE, which attaches to your Form 1040. The IRS instructions for Schedule SE walk through the form line by line.
Nobody withholds tax from your freelance payments, so you pay as you go. The IRS expects quarterly estimated tax payments in April, June, September, and January. Skip them, and you can owe an underpayment penalty even if you pay everything by the filing deadline. You can pay these using the online IRS payment portal.
If you have a W-2 job, you can potentially avoid making quarterly estimated tax payments by adding extra withholding to your Form W-4. This can help eliminate the extra quarterly work, provided the additional withholding is enough to cover your total tax liability.
5 Ways to Reduce Your Self-Employment Tax Bill
Some common tax-saving moves reduce income tax but not self-employment tax. The list below separates the two clearly.
1. Deduct every legitimate business expense
SE tax applies to net profit. Every dollar of deductible expense shrinks that number. Software, equipment, a home office, professional fees, and business travel all count if they’re ordinary and necessary for your work. Our list of self-employed write-offs is a good place to start.
2. Track expenses all year
Deductions you forget are deductions you lose. Keep receipts and categorize transactions as you go. A separate business bank account makes this much easier.
3. Claim the half-SE-tax deduction
It won’t lower your SE tax. It does lower your income tax, and it’s easy to miss if you file by hand.
4. Know what doesn’t reduce it
Retirement contributions to a SEP-IRA or solo 401(k) cut your income tax. So does the qualified business income (QBI) deduction. Neither reduces SE tax, because that tax is calculated before those deductions apply. They’re still worth using. Just don’t count on them for this particular bill.
5. Consider an S Corp election
This is the one structural change that can cut self-employment tax. With an S Corp, you pay yourself a reasonable salary through payroll and take the rest as distributions. Payroll tax applies to the salary. It doesn’t apply to distributions.
The math only works above a certain profit level, since an S Corp adds payroll and filing costs. For most freelancers, the numbers start to favor it somewhere in the $70,000 to $80,000 range. Set up a call with our team at Collective to walk through your numbers and see if the election could make sense for you.
Frequently Asked Questions
Do I owe self-employment tax if I have a W-2 job and freelance on the side?
Yes. Self-employment tax applies to your net freelance profit no matter what else you earn. Your W-2 wages may reduce how much Social Security tax you owe if they already reach the wage base.
Is self-employment tax the same as income tax?
No. Self-employment tax funds Social Security and Medicare. Income tax funds the federal government’s general operations. You owe both on freelance profit.
What if I earn less than $400?
You don’t owe self-employment tax if your net self-employment earnings are under $400. You still need to report the income on your return.
Does an LLC change how much self-employment tax I owe?
Not by default. A single-member LLC is taxed like a sole proprietorship, so you pay self-employment tax on all of your net profit. An LLC gives you liability protection, but not a tax break on its own. See our guide on choosing between an LLC and an S Corp.
Can I avoid self-employment tax entirely?
Not legally, if you have net profit from self-employment. You can reduce it by lowering your net profit through deductions or by electing S Corp status once your income is high enough.
Will paying self-employment tax help my Social Security benefits?
Yes. Your self-employment earnings count toward your Social Security record, the same as wages. Higher lifetime earnings generally mean a higher benefit.
Making Self-Employment Tax Simpler
Self-employment tax comes down to one rule: you pay both halves, on your net profit, on top of income tax. The best defenses are tracking every expense, setting money aside as you earn it, and knowing when an S Corp starts to make sense.
Collective is the all-in-one back office built for solopreneurs. We handle bookkeeping, quarterly tax guidance, payroll, and both your business and personal tax returns, so you always know what you owe and when. Estimate Your Tax Savings →
