What Is Self-Employment Tax? A Freelancer's Guide 2026

What Is Self-Employment Tax?

Self-employment tax is the Social Security and Medicare tax that self-employed people pay on their net business profit. Employees split these taxes with their employer — 7.65% each. When you work for yourself, you are both employer and employee, so you pay both halves: 15.3% total (12.4% Social Security + 2.9% Medicare) on your net self-employment earnings, up to the annual Social Security wage base.

This surprises new freelancers more than any other tax concept: it's on top of regular income tax, and nothing is withheld from client payments to cover it. This article is general information, not tax advice — consult a tax professional for your situation. Estimate your total picture with our free Tax Calculator.

How Self-Employment Tax Is Calculated

The tax applies to net profit — business income minus deductible business expenses — not gross revenue. Two adjustments soften the headline 15.3% rate:

The 92.35% adjustment exists to mirror the employer's half being excluded from an employee's taxable wages. Additionally, you can deduct one-half of your self-employment tax from your income when calculating income tax — softening the blow on the income-tax side (but not the SE tax itself).

Worked Example: Freelancer Earning $70,000

A freelance writer earns $78,000 from clients and has $8,000 in deductible business expenses (software, home office, equipment):

So on $70,000 of profit, roughly $9,900 goes to self-employment tax before income tax is even calculated. This is why the standard advice — set aside 25–30% of every freelance payment — exists: income tax plus SE tax together take a real bite. Pricing your work to absorb this starts with knowing your true costs; see our guide on how to calculate your freelance hourly rate.

Self-Employment Tax vs. Income Tax

Feature	Self-Employment Tax	Income Tax
What it funds	Social Security + Medicare	General federal revenue
Rate	Flat 15.3% (on the base)	Progressive brackets
Applies to	Net self-employment profit	Total taxable income
Withholding	None — pay via quarterly estimates	None for freelancers — same estimates
Deductions reduce it?	Yes — business expenses lower net profit	Yes — plus the employer-half SE deduction

Who Pays It (and Who Doesn't)

• Sole proprietors and freelancers: pay SE tax on net profit — the classic case.
• Partners: generally pay on their share of partnership income.
• S-corp owners: pay it only on their salary, not on distributions — the reason many profitable freelancers elect S-corp status (with real payroll and compliance costs attached).
• Employees: don't pay SE tax; they pay the employee half (7.65%) through withholding instead.

Net earnings below $400 for the year are generally exempt — a small threshold that mostly matters for tiny side gigs.

The S-Corp Question: When Does It Start Making Sense?

Many profitable freelancers eventually elect S-corporation status to reduce SE tax. The mechanics: as an S-corp, you pay yourself a reasonable salary (subject to payroll tax, like SE tax), and remaining profit flows through as distributions not subject to SE tax.

Illustrative example at $120,000 profit with a $70,000 reasonable salary:

But S-corps add real costs: payroll service fees, an extra tax return, stricter bookkeeping, and state fees. The common rule of thumb is that the election starts paying off around $60,000–$80,000+ of consistent profit — below that, compliance costs eat the savings. And "reasonable salary" isn't optional: the IRS can reclassify distributions as wages if your salary is suspiciously low. Model your specific numbers with a tax professional before electing.

How to Handle It in Practice

1. Pay quarterly estimated tax covering both income tax and SE tax — the underpayment penalty applies to the total.
2. Track deductible expenses diligently — every legitimate deduction lowers both taxes at once.
3. Consider S-corp election once profit comfortably exceeds a reasonable salary for your work — run the numbers with a professional first.
4. Don't forget the employer-half deduction when estimating income tax — it's easy money left on the table.

Remember: this is general information, not tax advice. Rates, wage bases, and thresholds change — verify current-year figures with a tax professional. Above all, build the tax into your pricing from day one: a rate that doesn't cover self-employment tax isn't a real rate — it's a slow leak you'll discover every April.