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Self-Employment Tax

Tax

US Self-Employment Tax (Social Security + Medicare)

A US tax paid by freelancers and self-employed individuals covering both the employer and employee portions of Social Security and Medicare, totalling 15.3% on net self-employment income.

Definition

Self-employment (SE) tax is a US federal tax that covers Social Security and Medicare contributions for individuals who work for themselves — freelancers, consultants, independent contractors, gig workers, and sole proprietors. When you are an employee, your employer pays half of these payroll taxes on your behalf. When self-employed, you are both employer and employee, so you pay the full combined rate.

SE tax is separate from income tax and is calculated on net self-employment income (gross SE income minus business expenses). Both SE tax and income tax are typically paid together through quarterly estimated tax payments.

The Indian equivalent for self-employed individuals is declaring business income under the head "Profits and Gains of Business or Profession" in the ITR, with advance tax paid quarterly and TDS potentially deducted at source by clients.

Formula

Net SE Income = Gross SE Income − Business Deductions

SE Tax Base = Net SE Income × 0.9235 (The 7.65% reduction accounts for the employer-equivalent deduction before the calculation)

SE Tax = SE Tax Base × 15.3% (12.4% Social Security + 2.9% Medicare)

Note: Social Security tax only applies on the first $176,100 of SE income (2025 threshold). Medicare has no cap.

Deductible SE Tax = SE Tax × 0.50 (You deduct half on Schedule 1 of Form 1040, reducing taxable income)

Worked Example

You are a freelance developer with $90,000 in gross income and $10,000 in business expenses.

  • Net SE Income = $90,000 − $10,000 = $80,000
  • SE Tax Base = $80,000 × 0.9235 = $73,880
  • SE Tax = $73,880 × 15.3% = $11,304
  • Deductible half = $11,304 ÷ 2 = $5,652 (reduces taxable income)
  • Adjusted income for income tax = $80,000 − $5,652 = $74,348

Your total federal tax burden = SE tax ($11,304) + income tax on $74,348 (minus standard deduction). Use the self-employment tax calculator to model your full liability.

Key Things to Know

  • Quarterly estimated payments: The IRS expects SE tax and income tax paid quarterly. Missing payments leads to underpayment penalties even if you pay in full at filing. Use Form 1040-ES to calculate each quarter's payment.
  • Home office deduction: If you work from home exclusively for business, you can deduct a portion of rent/mortgage interest, utilities, and internet as business expenses — reducing your net SE income and thus your SE tax.
  • Health insurance deduction: Self-employed individuals can deduct 100% of health insurance premiums for themselves and their family as an adjustment to gross income (not just as a business expense), provided they are not eligible for employer-subsidised health insurance through a spouse.
  • SEP-IRA and Solo 401(k): Retirement contributions to a SEP-IRA (up to 25% of net SE income) or Solo 401(k) (up to $23,500 employee + 25% employer contribution) are deductible, reducing both income tax and effective SE tax burden.
  • S-corp to reduce SE tax: Earning $100,000+ in SE income makes S-corp election worth exploring. Taking $60,000 as salary (SE tax applies) and $40,000 as distribution (no SE tax) saves approximately $6,120 in SE tax — though accounting costs reduce the net benefit.

Related Calculators

Self-Employment Tax Calculator →Calculate Social Security and Medicare self-employment tax for freelancers, 1099 contractors, and sole proprietors. Includes deductible SE tax and Additional Medicare Tax for 2024.
Federal Income Tax Calculator →Calculate your 2024 US federal income tax owed, effective tax rate, and marginal bracket by filing status. Supports standard and itemized deductions and pre-tax retirement contributions.
Salary / CTC Calculator →Calculate your in-hand monthly salary from CTC in India. Breaks down basic, HRA, PF, professional tax, income tax TDS to show your net take-home pay.

Related Terms

TDSTax Deducted at SourceAdvance TaxQuarterly Advance Tax PaymentITRIncome Tax Return

Frequently Asked Questions

Employees pay 7.65% (6.2% Social Security + 1.45% Medicare), but their employer pays a matching 7.65% on their behalf. When you are self-employed, you are both the employer and the employee, so you pay both halves — hence 15.3% total. However, you can deduct the employer-equivalent half (7.65%) as a business expense on your income tax return, partially offsetting the higher rate.
Net profit from a business or freelance activity you carry on as a sole proprietor or independent contractor (reported on Schedule C), net earnings from a partnership, and certain rental income if it is part of a business. Wages from a regular job (W-2 income) are not subject to SE tax. The threshold is low — if your net SE income is $400 or more in a year, you must pay SE tax.
One reason freelancers and consultants form S corporations is to reduce SE tax. With an S-corp, you pay yourself a 'reasonable salary' (subject to payroll taxes / SE tax) but take additional profits as owner distributions, which are not subject to SE tax. The IRS scrutinises unreasonably low salaries, so the strategy requires genuine compliance to withstand audit.
Self-employed individuals must pay estimated taxes quarterly (typically due April 15, June 15, September 15, January 15). If you expect to owe $1,000 or more in federal taxes for the year, quarterly payments are required to avoid underpayment penalties. Self-employment tax is included in these quarterly estimated payments along with income tax.
An additional 0.9% Medicare tax applies to SE income above $200,000 (single) or $250,000 (married filing jointly). Unlike the standard 2.9% Medicare tax, there is no employer deduction for this — you pay the full 0.9% with no offset. This is reported on Form 8959 and included in your income tax return.