# Self-employment tax explained

A plain guide to self-employment tax: what it is, why it is about 14% of your profit, who pays it, and a 2026 example with the numbers worked out.

Published October 26, 2026.

When you have a job, Social Security and Medicare tax comes out of every paycheck. Your employer pays the same amount again on top. You hardly notice it.

When you work for yourself, you pay both halves yourself. This is called **self-employment tax**. Nobody takes it out of your payments, so it often comes as a surprise at tax time.

## The short version

- Self-employment tax is **Social Security and Medicare** for people who work for themselves.
- The rate is **15.3%** (12.4% Social Security plus 2.9% Medicare).
- It applies to **92.35%** of your profit, so in practice it is about **14.1%** of your profit ([IRS Topic 554](https://www.irs.gov/taxtopics/tc554)).
- You owe it if that 92.35% figure is **$400 or more** for the year.
- It is **in addition to** income tax. You can owe it even in a year with no income tax.

## Who pays it

You pay self-employment tax if you are a:

- sole proprietor or [independent contractor](https://rightobooks.com/blog/contractor-or-employee/) (freelancer, gig worker, consultant, or someone with a [side hustle](https://rightobooks.com/blog/side-hustle-taxes/)),
- partner in a partnership, or
- single-member LLC owner, with the LLC taxed the default way.

Age does not matter. You still owe it if you already get Social Security ([IRS](https://www.irs.gov/instructions/i1040sse)).

## Why 92.35%?

An employee never pays tax on the employer's half of these taxes. To make things fair, the law takes 7.65% off your profit before it applies the rate. 100% − 7.65% = 92.35%.

## An example

Maya is a freelance designer. (She is an example, not a real person.) Her profit for 2026 is $60,000. Profit means what clients paid her, minus her [business expenses](https://rightobooks.com/blog/what-counts-as-a-business-expense/).

| Step | Amount |
|---|---|
| Profit | $60,000.00 |
| × 92.35% | $55,410.00 |
| Social Security: × 12.4% | $6,870.84 |
| Medicare: × 2.9% | $1,606.89 |
| **Self-employment tax** | **$8,477.73** |

That is about 14.1% of her profit. Income tax comes on top. See [how much to set aside for taxes](https://rightobooks.com/blog/how-much-to-set-aside-for-taxes/) for both together.

Try your own numbers in our free [self-employment tax calculator](https://rightobooks.com/tools/self-employment-tax/).

## Limits at the top

- **Social Security stops at $184,500** of earnings in 2026 ([IRS](https://www.irs.gov/instructions/i1040ss)). Above that, you pay only the 2.9% Medicare part. If you also have a job, your wages use up part of this limit first.
- **An extra 0.9% Medicare tax** starts above $200,000 for single people, $250,000 for married couples filing jointly, and $125,000 for married filing separately ([IRS](https://www.irs.gov/instructions/i1040sse)).

## You get half back as a deduction

You can deduct half of your self-employment tax from your income ([IRS Topic 554](https://www.irs.gov/taxtopics/tc554)). For Maya, that is $4,238.87. This lowers her income tax. It does not lower the self-employment tax itself.

## How you pay it

You work it out on Schedule SE when you file your tax return. Because nobody withholds it, most people pay it during the year with their [quarterly estimated tax](https://rightobooks.com/blog/quarterly-estimated-taxes/) payments, together with income tax.

## The one way to lower it

Self-employment tax is based on your profit. So the honest way to lower it is to record every real business expense. Each business expense lowers both your income tax and your self-employment tax.

That makes good records worth real money. [Righto](https://rightobooks.com/) shows your profit so far this year whenever you open the Profit and Loss report. You can also ask your own AI agent, such as Claude Code, for it. See [how agents work with Righto](https://rightobooks.com/agents/).

## Common questions

**Is self-employment tax the same as income tax?**
No. It is a separate tax for Social Security and Medicare.

**Do I pay it if my business made a loss?**
No. With no profit, there is nothing to tax.

**Does my state charge it?**
No. Self-employment tax is federal. Your state may have its own income tax.

## What to do now

1. Find your profit so far this year.
2. Put it in the [self-employment tax calculator](https://rightobooks.com/tools/self-employment-tax/).
3. Add your income tax to get a rough total.
4. Move a share of each payment into a separate savings account.
5. Put the next estimated tax date, January 15, 2027, in your calendar.

[Righto](https://rightobooks.com/download/) is free, easy to use and needs no account.

## Sources

- [Topic no. 554, Self-employment tax](https://www.irs.gov/taxtopics/tc554), IRS
- [Instructions for Schedule SE (Form 1040) (2025)](https://www.irs.gov/instructions/i1040sse), IRS
- [Instructions for Form 1040-SS (2025)](https://www.irs.gov/instructions/i1040ss), IRS