Self-Employment Tax: Everything Freelancers and Contractors Need to Know
When you work as an employee, your employer pays half of your Social Security and Medicare taxes. When you're self-employed, you pay both halves — that's the self-employment (SE) tax. Understanding SE tax is essential for freelancers, consultants, gig workers, and small business owners.
What Is Self-Employment Tax?
Self-employment tax consists of two components:
- Social Security tax: 12.4% on net self-employment income up to the wage base ($176,100 in 2026)
- Medicare tax: 2.9% on all net self-employment income (no cap)
Combined, SE tax is 15.3% up to the Social Security wage base, and 2.9% on everything above it. An additional 0.9% Medicare surtax applies to income over $200,000 (single) or $250,000 (married).
How SE Tax Is Calculated
The IRS computes SE tax on 92.35% of your net self-employment income, not the full amount. This is because employees pay their half of FICA on gross wages, but as a self-employed person, your "net" is after expenses. The 92.35% adjustment accounts for the employer portion being deductible.
Formula: Net SE income × 0.9235 × 15.3% = SE tax
Example: $80,000 net SE income × 0.9235 × 0.153 = $11,307 SE tax
The Self-Employment Tax Deduction
Here's a tax benefit that many self-employed people miss: you can deduct half of your SE tax as an above-the-line deduction on your income tax return. This reduces your adjusted gross income (AGI), which in turn lowers your federal income tax bill.
In the example above: $11,307 × 50% = $5,654 deduction. If you're in the 22% bracket, this saves you about $1,244 in income taxes.
Quarterly Estimated Tax Payments
Self-employed people don't have taxes withheld from a paycheck. Instead, you must make quarterly estimated tax payments to avoid a penalty at filing time. The 2026 due dates are:
- Q1: April 15, 2026
- Q2: June 16, 2026
- Q3: September 15, 2026
- Q4: January 15, 2027
The safe harbor rule lets you avoid penalties by paying either 100% of last year's tax liability or 90% of your current year's estimated tax, whichever is less.
Self-Employed Retirement Deductions
Self-employed individuals have access to powerful retirement account options that reduce taxable income:
- Solo 401(k): Contribute up to $70,000 in 2026 (employee + employer contributions combined)
- SEP-IRA: Contribute up to 25% of net self-employment income, max $70,000
- SIMPLE IRA: Up to $16,500 employee deferrals in 2026
These contributions reduce both your income tax and, in some cases, the base on which SE tax is calculated.
Business Deductions That Reduce SE Tax
Unlike W-2 employees, self-employed individuals can deduct legitimate business expenses that reduce their net self-employment income — which in turn reduces both income tax and SE tax:
- Home office deduction (actual expense or simplified $5/sq ft method)
- Self-employed health insurance premiums (100% deductible above the line)
- Business use of vehicle (standard mileage or actual expenses)
- Professional subscriptions, software, and equipment
- Professional development and education
- Half of self-employment tax (automatic above-the-line deduction)