Self-Employment Tax Explained (2026)

If you're new to freelancing, self-employment tax is probably the biggest surprise on your first tax return.

As a W-2 employee, you paid 7.65% of your wages in payroll taxes (Social Security and Medicare). Your employer paid another 7.65% on top of your salary. As a freelancer, you pay both halves — totaling 15.3%.

This guide explains exactly how self-employment tax works, how to calculate it, and how to minimize it with deductions.

What Is Self-Employment Tax?#

Self-employment tax is not income tax. It's a separate tax that funds Social Security and Medicare — the same programs that W-2 employees fund through payroll withholding.

The SE tax rate is 15.3%, broken into two parts:

• 12.4%: Social Security (old-age, survivors, and disability insurance)
• 2.9%: Medicare (hospital insurance)

Above certain income thresholds, an additional Medicare tax of 0.9% applies.

Who Must Pay SE Tax?#

You must file Schedule SE and pay self-employment tax if your net self-employment income is $400 or more in a tax year.

This includes:

• Freelancers and independent contractors
• Sole proprietors
• Gig economy workers (Uber, DoorDash, freelance platforms)
• Single-member LLC owners
• Partners in a partnership

Even if your freelance work is part-time or a side hustle, you owe SE tax on net earnings over $400.

How SE Tax Is Calculated#

The IRS doesn't apply 15.3% to your full net profit. Instead, it uses a formula:

Step 1: Calculate net earnings#

Net earnings = Net profit x 92.35%

The 92.35% factor accounts for the fact that the employer-equivalent half of SE tax is deductible before the tax is calculated.

Step 2: Multiply by the SE tax rate#

SE tax = Net earnings x 15.3% (for income under $184,500)

Example#

A freelancer with $80,000 in net profit:

1. Net earnings: $80,000 x 92.35% = $73,880
2. SE tax: $73,880 x 15.3% = $11,304

That's $11,304 on top of whatever income tax they owe.

2026 Social Security Wage Cap#

The 12.4% Social Security portion of SE tax only applies to the first $184,500 of combined wages and self-employment income in 2026.

• If your total income (W-2 + SE) is under $184,500, all your net earnings are subject to the full 15.3%
• If your total income exceeds $184,500, you stop paying the 12.4% Social Security portion at that threshold
• The 2.9% Medicare portion continues on all net earnings with no cap
• An additional 0.9% Medicare tax kicks in above $200,000 (single) or $250,000 (joint)

For most freelancers (earning under $184,500), the full 15.3% applies to all net earnings.

The 50% Deduction#

Here's the good news: you can deduct half of your self-employment tax (the employer-equivalent portion) when calculating your adjusted gross income.

In the example above, half of $11,304 = $5,652. This amount reduces your taxable income, saving you additional income tax.

This deduction appears on Schedule 1, Line 15 of Form 1040 — not on Schedule C. It's available whether you itemize deductions or not.

How to File SE Tax#

You report self-employment tax using Schedule SE (Form 1040):

1. Report your freelance income and expenses on Schedule C
2. Transfer your net profit to Schedule SE
3. Calculate your SE tax
4. The SE tax amount flows to Schedule 2, Line 4
5. Half of SE tax flows to Schedule 1, Line 15 as a deduction

SE Tax vs. W-2 Payroll Tax#

How Deductions Reduce Your SE Tax#

Self-employment tax is calculated on net profit, not gross revenue. Every dollar of business expenses you claim reduces your SE tax base.

If you earn $100,000 in gross revenue and have $20,000 in legitimate deductions, your net profit is $80,000. That $20,000 savings saves you $20,000 x 92.35% x 15.3% = $2,826 in SE tax alone — plus whatever income tax you would have paid on that amount.

This is why tracking every expense throughout the year is essential. Tools like Reinvoice help you categorize expenses as you go, so nothing slips through at tax time.

The Additional Medicare Tax#

High earners should be aware of the Additional Medicare Tax:

• 0.9% surcharge on wages and self-employment income
• Applies above $200,000 (single) or $250,000 (married filing jointly)
• Unlike the base Medicare tax, this is NOT deductible

This means high-earning freelancers effectively pay 15.3% + 0.9% = 16.2% on earnings above the threshold.

Common Questions#

Do I pay SE tax if I have a W-2 job and freelancing on the side?#

Yes. If your combined self-employment income is $400 or more, you owe SE tax on that income. However, the Social Security wage cap ($184,500) applies to your combined W-2 and SE income, so you may not pay the full 12.4% Social Security portion twice.

Can I opt out of SE tax?#

No. Self-employment tax is mandatory if you earn $400+ in net self-employment income. There is no legal way to opt out.

Does SE tax apply to LLC income?#

It depends. Single-member LLCs are treated as sole proprietors for tax purposes, so SE tax applies. Multi-member LLCs and S-corporations have different rules — distributions may not be subject to SE tax, but reasonable compensation is.

What is the 2026 self-employment tax rate?#

The rate remains 15.3%: 12.4% for Social Security plus 2.9% for Medicare. The Social Security wage base increased to $184,500 for 2026.

The Bottom Line#

Self-employment tax adds 15.3% to your effective tax rate as a freelancer. Half of it is deductible, and it only applies to net profit (not gross revenue). Track every expense to minimize it, file Schedule SE with your return, and make quarterly payments to stay ahead of the IRS.

Track your freelance income and expenses with Reinvoice to make tax season easier.