Self-Employment Tax Explained: What Freelancers Actually Owe

What is self-employment tax?

Self-employment tax is a federal tax that covers Social Security and Medicare contributions for people who work for themselves. When you work as an employee, your employer pays half and you pay the other half through payroll withholding. As a freelancer, you pay both halves -- a combined rate of 15.3%.

The 15.3% breaks down into 12.4% for Social Security (on income up to $184,500 in 2026) and 2.9% for Medicare (on all income, no cap). If your net earnings exceed $200,000 as a single filer, you also owe an additional 0.9% Medicare surtax.

How it's calculated step by step

The IRS doesn't apply the 15.3% to your full income. Here's the actual formula:

• Start with your gross 1099 income
• Subtract all deductible business expenses to get net income
• Multiply net income by 92.35% (this is the SE tax base)
• Apply the 15.3% rate to that base
• You can then deduct half of the SE tax from your gross income, which reduces your income tax

That 92.35% adjustment exists because the IRS is accounting for the "employer half" of the tax. It's a small break, but it adds up.

6 ways to reduce your self-employment tax

Every dollar you deduct reduces your net income, which directly reduces your SE tax. Here are the most effective deductions:

• Home office deduction -- $5 per square foot, up to 300 sq ft ($1,500 max using the simplified method)
• Health insurance premiums -- 100% deductible if you're self-employed and not eligible for an employer plan
• Retirement contributions -- SEP-IRA lets you put away up to 25% of net income (max $69,000). This reduces both SE tax and income tax
• Business equipment -- Computers, software, phones, and monitors can be deducted in the year you buy them
• Mileage -- 70 cents per mile for business driving in 2026
• Internet and phone -- The business percentage of your monthly bills

When to pay

If you expect to owe $1,000 or more in taxes, the IRS wants you to pay quarterly:

• Q1: April 15
• Q2: June 15
• Q3: September 15
• Q4: January 15 of the following year

Missing these dates triggers an underpayment penalty. It's not huge, but it's avoidable. Mark the dates in your calendar and set aside 25-30% of every payment you receive.

The bottom line

Self-employment tax is the price of working for yourself. You can't eliminate it, but you can minimize it by maximizing deductions and contributing to retirement accounts. Run your numbers through a calculator to see exactly where you stand -- then plan your quarterly payments so you're never surprised.