Why the self-employed pay 15.3%
Social Security and Medicare are paid for by two matching contributions. When you draw a paycheck, your employer withholds 7.65% from you and quietly pays another 7.65% of its own — theFICAyou may never have noticed. Work for yourself and there is no employer to cover that second half, so you owe both: 12.4% for Social Security and 2.9% for Medicare, 15.3% in all. The Social Security portion stops once your earnings reach the annual wage base, while the Medicare portion has no cap and adds an extra 0.9% for high earners.
The self-employment tax formula
Net earnings = Net profit × 92.35%
SE tax = Net earnings × 15.3%
where the 92.35% adjustment reduces the base to yournet earnings from self-employment, and the 15.3% combines the 12.4% Social Security rate (up to the wage base) with the 2.9% Medicare rate (uncapped). Half of the tax you end up paying is then deductible against your income tax.
Worked example
Take a freelancer with $100,000.00 of net profit for the year. Here is how the self-employment tax bill comes together:
| Step | Amount |
|---|---|
| Net self-employment incomeprofit after business expenses | $100,000.00 |
| × 92.35% = Net earningsthe taxable base — mirrors the employer share that would not itself be taxed | $92,350.00 |
| Social Security portion12.4% on net earnings up to the $184,500.00 wage base | $11,451.40 |
| + Medicare portion2.9% on all net earnings — no cap | $2,678.15 |
| = Self-employment taxhalf of it — $7,064.78 — is deductible against your income tax | $14,129.55 |
Computed with this calculator's default settings — open the tool above and you'll see the same numbers, then change any input to match your own situation.
The two breaks built into the calculation
- You are taxed on 92.35% of profit, not all of it.Before applying the rate, your net profit is multiplied by 92.35% to arrive at net earnings from self-employment. This mirrors the fact that an employer's share of payroll tax would not itself be subject to the tax.
- Half the tax is deductible. You can subtract half of the self-employment tax you pay — the employer-equivalent portion — when computing your income tax. It lowers taxable income rather than the self-employment tax itself.
- The Social Security portion is capped. Only earnings up to the annual wage base attract the 12.4% Social Security rate; beyond that, just the 2.9% Medicare rate (plus the 0.9% high-earner surcharge) applies.
It sits on top of income tax
The biggest surprise for new freelancers is that self-employment tax is entirely separate from, and charged in addition to, federal and state income tax. The same dollar of profit is taxed twice: once here for Social Security and Medicare, and again as ordinary income. Because no one is withholding on your behalf, you generally cover both through quarterly estimated tax payments. To see the full picture, pair this tool with ourincome tax calculatorand oureffective tax rate calculatorto understand what your combined burden actually works out to.
Frequently asked questions
What is self-employment tax?
Self-employment tax is how people who work for themselves pay into Social Security and Medicare. When you are an employee, you and your employer each cover half of these contributions — 7.65% apiece. When you are self-employed there is no employer to share the bill, so you pay both halves yourself. That combined rate is 15.3%, made up of 12.4% for Social Security and 2.9% for Medicare, and it is reported separately from your regular income tax.
How much is self-employment tax?
The headline rate is 15.3% — 12.4% for Social Security plus 2.9% for Medicare — but it does not apply to your full profit. You first multiply your net profit by 92.35% to get your net earnings from self-employment, and the tax is calculated on that smaller figure. The Social Security portion only applies up to the annual wage base; earnings above that cap are subject to the 2.9% Medicare portion alone, with an additional 0.9% Medicare surcharge once income passes the high-earner threshold.
Why do I pay both halves?
For an employee, Social Security and Medicare are funded by two equal contributions: one withheld from the worker and a matching one paid by the employer, 7.65% each. When you are self-employed you are effectively both the worker and the employer, so you are responsible for both contributions. That is why the self-employed rate of 15.3% is exactly double the 7.65% an employee sees withheld from their paycheck.
Is self-employment tax on top of income tax?
Yes. Self-employment tax is entirely separate from federal and state income tax and is charged in addition to it. The same profit is taxed twice in different ways: once through self-employment tax for Social Security and Medicare, and again through income tax. This catches many new freelancers off guard, because an employee never sees the employer half and only thinks about income tax. Setting money aside and paying quarterly estimated taxes is the usual way to stay ahead of both bills.
Can I deduct any of it?
You can deduct half of the self-employment tax you pay when figuring your income tax. This is the employer-equivalent portion: since an employer would normally cover that half and could deduct it as a business expense, the tax system lets you do the same. The deduction reduces your taxable income, not the self-employment tax itself, so it softens the overall burden without changing how much Social Security and Medicare you actually owe.
Sources
- IRS — Self-employment tax (Social Security and Medicare taxes)
- IRS Topic 751 — Social Security and Medicare withholding rates
- SSA — Contribution and benefit base (Social Security wage base)
The official figures this page quotes are drawn from the primary sources above — check them (or a qualified professional) before relying on a result.
Disclaimer: This calculator is foreducation and illustration only. Self-employment tax rules, rates, the wage base, and thresholds change over time and depend on your full situation, so the figures it produces are estimates rather than a filing. Nothing here is tax, accounting, or financial advice — consult a qualified professional for your circumstances.