Self-Employment Tax Explained: The 15.3% Rate, Deductions and Quarterly Payments

Self-employment tax is the Social Security and Medicare tax that freelancers, contractors and sole proprietors pay on their own earnings, at a combined rate of 15.3%. Employees split that bill with their employer; if you work for yourself, you pay both halves. This guide explains who owes it, how it is calculated, the new 2027 wage base, the deductions that reduce it and how quarterly estimated payments work.

What Is Self-Employment Tax?

In the US, Social Security and Medicare are funded by payroll taxes under the Federal Insurance Contributions Act (FICA). An employee pays 7.65% of wages and the employer pays a matching 7.65%. The Self-Employment Contributions Act (SECA) applies the same total rate to people who work for themselves:

• Social Security (OASDI): 12.4% of net earnings, up to an annual cap known as the wage base
• Medicare (HI): 2.9% of all net earnings, with no cap
• Additional Medicare Tax: a further 0.9% on earnings above $200,000 for single filers, $250,000 for married couples filing jointly and $125,000 for married people filing separately

Self-employment tax is separate from income tax. You can owe it even if your income tax bill is zero because of deductions or credits, which surprises many first-time freelancers.

Who Has to Pay Self-Employment Tax?

According to the Internal Revenue Service (IRS), you generally owe self-employment tax if your net earnings from self-employment are $400 or more in a year. That includes:

• Sole proprietors and independent contractors paid on a Form 1099
• Freelancers selling through platforms such as Upwork, Fiverr or Etsy
• Members of a partnership or a multi-member LLC taxed as a partnership
• Single-member LLC owners, unless the LLC elects to be taxed as a corporation

If you earn money through a gig platform, the platform’s fees are a business expense, but the remainder is self-employment income. Our comparison of Upwork vs Fiverr explains how each platform’s fees work.

How Is Self-Employment Tax Calculated?

The calculation is done on Schedule SE of your Form 1040, but the logic is simple:

• Step 1: work out your net profit, which is business income minus allowable business expenses (Schedule C for most sole proprietors)
• Step 2: multiply net profit by 92.35% to get net earnings from self-employment; this mirrors the fact that employees do not pay FICA on their employer’s share
• Step 3: apply 12.4% to that figure up to the Social Security wage base, and 2.9% to the whole amount
• Step 4: add the 0.9% Additional Medicare Tax if your combined wages and self-employment earnings exceed the threshold

Example: a freelance designer has $90,000 of revenue and $10,000 of expenses, leaving $80,000 of profit. Net earnings are $80,000 × 92.35% = $73,880. Self-employment tax is $73,880 × 15.3% = about $11,304. Half of that, about $5,652, is deductible when calculating income tax.

What Is the Social Security Wage Base for 2026 and 2027?

The 12.4% Social Security portion only applies up to a cap that rises each year with average wages. The Social Security Administration (SSA) announced in October 2026 that:

• 2026 wage base: $184,500
• 2027 wage base: $192,300
• Maximum Social Security tax per side in 2027: $11,922.60, up from $11,439 in 2026
• Maximum Social Security portion for a self-employed person in 2027: $23,845.20, since they pay both sides
• 2027 cost-of-living adjustment for benefits: 3.6%

The Medicare portion has no cap, so very high earners keep paying 2.9%, plus 0.9% above the Additional Medicare threshold. Those thresholds are not indexed to inflation, so more people cross them each year.

If you also have a salaried job, your wages count towards the wage base first. If your wages already exceed the cap, you only pay the Medicare portion on your freelance profit.

What Deductions Reduce Self-Employment Tax?

The most effective way to cut self-employment tax legally is to claim every legitimate business expense, because the tax is levied on profit. Common deductions include:

• Home office: if you use part of your home regularly and exclusively for business
• Equipment and software: computers, cameras, subscriptions and tools
• Business travel and vehicle use: using actual costs or the IRS standard mileage rate
• Professional services: accountants, lawyers and platform fees
• Health insurance premiums: deductible for income tax (not self-employment tax) if you are not eligible for an employer plan

Two further deductions reduce income tax rather than self-employment tax: the deduction for half of your self-employment tax, and the qualified business income (QBI) deduction of up to 20% for many pass-through businesses. Retirement contributions to a SEP IRA or solo 401(k) also reduce income tax; see our guide to the Roth IRA vs traditional IRA for how individual accounts fit in.

Can an S Corporation Reduce Self-Employment Tax?

Possibly. Owners of an LLC or corporation that elects S corporation status pay themselves a salary, which is subject to payroll tax, and can take remaining profit as distributions that are not subject to Social Security and Medicare tax. The IRS requires the salary to be “reasonable” for the work performed, and running payroll adds accounting costs. For many freelancers, the saving only starts to outweigh the extra cost once profit is comfortably into six figures. Our explainer on LLC vs S Corp walks through the trade-offs.

How Do Quarterly Estimated Tax Payments Work?

Nobody withholds tax from a freelancer’s income, so the IRS expects you to pay as you go through quarterly estimated payments using Form 1040-ES. For income earned in 2026, the final payment is due on 15 January 2027. For the 2027 tax year, payments are normally due in mid-April, mid-June, mid-September and mid-January 2028, moving to the next business day if the date falls on a weekend or holiday.

You generally need to make estimated payments if you expect to owe at least $1,000 when you file. To avoid an underpayment penalty, the IRS’s safe harbour rules require you to pay at least 90% of this year’s tax or 100% of last year’s tax (110% if your adjusted gross income was above $150,000). Many freelancers set aside 25% to 30% of every payment in a separate savings account; our guide to building an emergency fund covers where to keep that cash.

Does Self-Employment Tax Apply If I Work Abroad?

US citizens remain liable for self-employment tax wherever they live, unless a totalisation agreement between the US and their country of residence assigns coverage to the other country. The Foreign Earned Income Exclusion reduces income tax but not self-employment tax. Our guide to digital nomad taxes for Americans explains the rules in more detail.

Is Self-Employment Tax Worth It?

It feels expensive, but the payments are not lost. They earn you Social Security credits towards retirement and disability benefits, and Medicare coverage from age 65. Because benefits are based on your record of covered earnings, under-reporting income to save tax can reduce what you receive later.

Tax rules can change and individual circumstances vary, so treat this as general information and speak to a qualified tax professional or enrolled agent about your own situation.

Featured image: Illustrative AI-generated scene created for MediaPavilion; it does not depict a real person or event. Combined with MediaPavilion branding.

Sources

• Journal of Accountancy — Social Security wage base and COLA announced for 2027 (14 October 2026).
• Social Security Administration — Contribution and Benefit Base (2026).
• Internal Revenue Service — Topic No. 554, Self-Employment Tax (2026).
• Internal Revenue Service — Self-Employment Tax (Social Security and Medicare Taxes) (2026).
• Internal Revenue Service — Estimated Taxes (2026).