If you’re a sole proprietor, single-member LLC, or 1099 contractor earning $400+ of net self-employment income, you owe Self-Employment (SE) Tax. It’s separate from federal income tax and is the single biggest tax surprise for new freelancers, adding 15.3% on top of whatever income tax you owe.

Here’s how SE tax actually works, including the half-deduction that softens the blow.

What SE tax is

When you’re a W-2 employee, you pay 7.65% FICA (6.2% Social Security + 1.45% Medicare) and your employer pays a matching 7.65%. Total contribution to your Social Security and Medicare entitlements: 15.3%.

When you’re self-employed, you pay both halves out of your own pocket. That’s SE tax.

For 2026:

  • Social Security portion: 12.4% on the first $176,100 of net SE income
  • Medicare portion: 2.9% on all net SE income (no cap)
  • Additional Medicare Tax: 0.9% on net SE income above $200K single / $250K MFJ

The 12.4% Social Security portion stops at $176,100; the 2.9% Medicare portion continues forever; high earners add 0.9%.

The 92.35% adjustment

The IRS doesn’t apply 15.3% to your full self-employment income. Schedule SE has you multiply your net SE income by 92.35% first, then apply the 15.3%.

The reasoning: in a W-2 scenario, the employer’s half of FICA isn’t part of your wages, it’s deductible to the employer. To approximate this, the IRS shields ~7.65% of self-employment income from the SE calculation. (92.35% = 100% - 7.65%.)

So on $100,000 of net SE income:

  • Adjusted SE income: $92,350
  • SE tax: $92,350 × 15.3% = $14,129

The half-deduction

You can deduct half of your SE tax as an adjustment to income (above-the-line deduction) on Form 1040. This reduces your federal AGI by that amount.

So in the $100K example above:

  • SE tax: $14,129
  • Half deductible: $7,065 (reduces AGI)

If you’re in the 22% federal bracket, the half-deduction saves $1,554 of income tax. So your true SE tax burden is $14,129 - $1,554 = $12,575, or ~12.6% of gross SE income, not 15.3%.

How to plan for SE tax

1. Set aside 25-30% of every check

This covers federal income tax + SE tax for most freelancers. High earners (35%+ marginal bracket): set aside 35-40%.

2. Pay quarterly estimated tax

Form 1040-ES with quarterly payments:

  • Q1: April 15 (income from Jan-Mar)
  • Q2: June 15 (income from Apr-May)
  • Q3: Sept 15 (income from Jun-Aug)
  • Q4: Jan 15 (income from Sep-Dec)

Use safe-harbor rules: pay either 90% of current-year liability OR 100% of prior-year liability (110% if AGI > $150K) to avoid underpayment penalty.

3. Keep a separate tax-savings account

A high-yield savings account separate from operating cash. Move 25-30% of every received payment into it immediately. This is the single most effective discipline for staying out of trouble.

4. Use the right deductions to reduce SE income

SE tax is calculated on NET self-employment income (revenue minus business expenses). Maximizing business expenses reduces both income tax AND SE tax.

Top SE-tax-reducing deductions:

  • Home office (% of rent/mortgage, utilities)
  • Equipment (Section 179 expensing)
  • Software subscriptions
  • Mileage (67¢/mile, 2024 IRS standard rate)
  • Health insurance premiums (above-the-line)
  • Retirement plan contributions (Solo 401(k), SEP IRA)

The biggest SE-tax reducer for high-earning freelancers: Solo 401(k) employer contributions (employer contributions reduce SE income).

Schedule SE walkthrough

Form 1040 + Schedule SE flow:

  1. Schedule C (Profit or Loss from Business): compute net SE income
  2. Schedule SE line 4a: net SE income × 0.9235 = adjusted base
  3. Schedule SE line 4c: split into Social Security portion (capped at $176,100) and Medicare portion (uncapped)
  4. Schedule SE line 12: 15.3% × adjusted base = SE tax
  5. Schedule SE line 13: 50% of SE tax → deductible above-the-line on Form 1040
  6. Form 1040 Schedule 2 line 4: SE tax (full amount)
  7. Form 1040 Schedule 1 line 15: deductible half of SE tax

Special cases

Two jobs (W-2 + self-employment)

SE income on top of W-2 wages: the Social Security cap is applied across all income. If your W-2 wages already exceed $176,100, your SE income is exempt from the 12.4% Social Security portion (you’ve already maxed out via the W-2). But the 2.9% Medicare portion still applies.

Husband-wife partnership or qualified joint venture

Both spouses pay SE tax on their share of partnership income.

LLC taxed as S-Corp

Pay yourself a reasonable salary (W-2 wages), the salary is subject to FICA but the remaining profit pulled as distributions is NOT subject to SE tax. This is the primary tax advantage of S-Corp election for high-income consultants/freelancers. Threshold to make S-Corp worth the complexity: ~$80K+ of consistent annual profit.

Religious sect exemption

Members of certain religious sects (Amish, etc.) may opt out via Form 4029. Very narrow exception.

Common mistakes

Not paying quarterly. End-of-year tax bill + underpayment penalty.

Not tracking business expenses. Every $100 of unrecorded business expense costs you ~$30-40 in unnecessary tax.

Treating gross 1099 revenue as profit. Always subtract expenses first; tax is on net.

Skipping the home office deduction out of audit fear. IRS data doesn’t support that fear. Use it if legitimate.

Failing to make S-Corp election when justified. Above ~$80K of consistent profit, S-Corp can save thousands per year.

Forgetting Solo 401(k). Up to $70,000/year of tax-deferred contributions for self-employed. The single best SE-tax mitigation tool.

Worked example

Software consultant, sole proprietor, 2026:

LineAmount
Gross revenue$150,000
Home office deduction($6,000)
Equipment + software($4,000)
Health insurance($8,000)
Solo 401(k) (employer portion, 20%)($30,000)
Net SE income$102,000
Adjusted (×92.35%)$94,197
SE tax (×15.3%)$14,412
Half deductible$7,206
Federal income tax (after std ded + half SE)~$10,500
Total federal tax~$24,912

Effective tax rate: ~16.6% on $150K gross revenue. With state tax (varies), add 5-10% more.

Run your own scenario with our Self-Employment Tax Calculator and 1099 Tax Calculator.

Other countries

The self-employed FICA equivalent varies dramatically:

  • United Kingdom, Class 4 NI: 6% on profits £12,570-£50,270, 2% above (effective rate ~5-6%). Far lower than US 15.3%.
  • Canada, CPP: 11.9% on self-employment income up to $71,300 (half of which is deductible). EI: opt-in only for self-employed.
  • Australia, Self-employed pay Super into their own account (not mandatory but recommended). No separate “SE tax”, taxed as ordinary income.
  • India, Presumptive taxation (Section 44ADA) allows 50% deemed expense for professionals; profit taxed at slab rate. No separate SE tax structure.

Primary sources