What is The Self-Employment Tax Rate?

What is Self-Employment Tax?

Self-employment tax is how the IRS collects Social Security and Medicare taxes from individuals who work for themselves. When you’re a W-2 employee, these taxes are split between you and your employer. When you’re self-employed, you are responsible for both portions, which is why the tax feels higher.

This tax generally applies to sole proprietors, independent contractors, freelancers, and partners who earn income from a trade or business.

Current Self-Employment Tax Rate

For the 2026 tax year, the self-employment tax rate remains 15.3%, which covers both the Social Security and Medicare portions of your self-employment FICA taxes. That breaks down into:

• 12.4% for Social Security
• 2.9% for Medicare

2026 Income Thresholds

Even though the rate stays the same, how much of your income is taxed can change annually based on IRS thresholds.

• Social Security Wage Base: For 2026, the amount of self-employment income subject to the 12.4% Social Security tax is capped at $184,500. Any earnings above this amount are not subject to the Social Security portion of the self-employment tax.
• Medicare Tax: Unlike Social Security, Medicare tax applies to all your net earnings, no matter how high your income goes.
• Additional Medicare Tax: If your income exceeds certain thresholds, you may also owe an extra 0.9% Medicare tax on earnings over these amounts (in addition to the 2.9% Medicare rate):
  • $200,000 for single filers
  • $250,000 for married filing jointly
  • $125,000 for married filing separately

It’s important to note that any self-employment income over $400 is subject to self-employment tax.

How to Calculate Your Tax

Self-employment tax isn’t calculated on your total income; it’s based on your net earnings. To determine your net income, subtract any qualifying business expenses from your total amount earned. For Schedule C filers, this is the same as the net profit claimed on that form.

Once you have your net earnings, complete the following steps to calculate your self-employment tax.

1. Multiply your net earnings by 92.35% (.9235). Why this amount? The 92.35% adjustment exists because the IRS allows self-employed individuals to deduct the employer portion of Social Security and Medicare taxes (7.65%) when calculating self-employment tax.
2. Next, it’s time to determine the Social Security amount. Take the number from step 1 (or $184,500, whichever is smaller) and multiply it by 12.4% (Social Security rate).
3. Calculate the Medicare amount by taking the amount in step 1 and multiplying it by 2.9%. Since there is no income limit on Medicare tax, you must use the full amount.
4. Add the amounts from step 2 (Social Security) and step 3 (Medicare) to get your self-employment tax amount.

Self-Employment Tax Example

Whitney makes $70,000 in net earnings from her home-based cupcake business and needs to determine her amount of self-employment taxes for the year.

1. She multiplies $70,000 x .9235, which equals $64,645.
2. Next, she takes $64,645 (because it’s smaller than $184,500) and multiplies that by the Social Security tax rate of 12.4% (.124). That gives her $8,015.98.
3. She then calculates her Medicare tax amount by multiplying $64,645 by 2.9% (.029) to arrive at $1,874.71.
4. Adding $8,015.98 (Social Security) and $1,874.71 (Medicare), she determines that her self-employment tax for 2026 is $9,890.69.

There is an advantage to those paying self-employment taxes; you can deduct 50% when calculating your federal income tax amount.

Consequences of Not Paying Self-Employment Tax

Not paying your self-employment taxes can quickly snowball into a serious financial problem. Consequences may include:

• IRS penalties and daily interest charges
• Tax liens against business or personal assets
• Bank account and asset seizures (levies)

The longer the balance goes unpaid, the fewer options you may have to resolve it easily. If you can’t pay your taxes, speak with the IRS or a tax professional ASAP.

Need Help?

Whether you’re a first-time filer or a business owner dealing with unpaid self-employment taxes, Business Tax Relief is here to help. Our experienced tax professionals specialize in business tax services, IRS resolution options, and customized strategies to get you back into compliance without unnecessary stress.

If self-employment taxes have you feeling overwhelmed, don’t wait until the problem gets worse. Reach out to Business Tax Relief today and take the first step toward protecting your business and your financial future.