Results are estimates for educational purposes only. Actual tax may vary. Consult a qualified tax professional or CPA for advice specific to your business situation.
How self-employment tax works in 2026
When you work for an employer, your payroll taxes are split — you pay 7.65% and your employer pays a matching 7.65%. When you are self-employed, you pay both halves yourself, which is why the self-employment tax rate is 15.3%.
The 15.3% consists of two parts: 12.4% Social Security (on income up to $168,600) and 2.9% Medicare (on all income, no cap). If your net earnings exceed $200,000 as a single filer, an additional 0.9% Medicare surtax applies.
The self-employment tax is calculated on your net earnings — revenue minus business expenses — multiplied by 92.35%. This 92.35% adjustment accounts for the employer-equivalent portion of SE tax that reduces your taxable income.
The SE tax deduction — a key benefit
You can deduct 50% of your self-employment tax from your gross income when calculating federal income tax. This is an above-the-line deduction, meaning you get it whether you itemize or not. It partially compensates for the fact that employers deduct their half of payroll taxes as a business expense.
Quarterly estimated tax payments
As a self-employed person, you do not have taxes withheld from your income automatically. Instead, the IRS requires you to pay estimated taxes four times per year. The 2026 deadlines are:
Q1 (Jan–Mar income): April 15, 2026
Q2 (Apr–May income): June 16, 2026
Q3 (Jun–Aug income): September 15, 2026
Q4 (Sep–Dec income): January 15, 2027
Missing estimated payments results in an underpayment penalty, even if you pay your full tax bill by April 15. The safe harbor rules let you avoid penalties by paying either 90% of your current year's tax or 100% of last year's tax (110% if last year's AGI exceeded $150,000).
Reducing your self-employment tax bill legally
Deduct business expenses: Every legitimate business expense reduces your net self-employment income and therefore your SE tax. Home office, equipment, software, professional development, health insurance premiums, and business travel are common deductions.
Contribute to a retirement plan: SEP-IRA contributions can be up to 25% of net self-employment income (max $69,000 in 2026). These reduce your federal income tax but not your SE tax.
Consider an S-Corp election: At higher income levels ($50,000+), operating as an S-Corporation can reduce SE tax by splitting income into salary and distributions. The salary portion is subject to payroll tax; distributions are not.
Frequently asked questions
Schedule SE is the IRS form used to calculate your self-employment tax. You attach it to your Form 1040 each year. The form takes your net self-employment income from Schedule C (for sole proprietors) or your share of partnership income, applies the 92.35% adjustment, and calculates your SE tax at 15.3% (up to the Social Security wage base) and 2.9% above that.
Yes. Self-employed individuals can deduct 100% of health, dental, and long-term care insurance premiums for themselves, their spouse, and dependents. This deduction is taken on Schedule 1 and reduces your federal income tax but not your self-employment tax. You cannot claim this deduction in months where you were eligible for employer-sponsored coverage through a spouse's employer.
Self-employment income includes freelance or consulting income, income from running a sole proprietorship or single-member LLC, your share of partnership income if you actively participate, and net earnings from a side business. It generally does not include W-2 wages, dividends, capital gains, or rental income (unless you are a real estate dealer).