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 of these taxes and you pay the other half through payroll withholding. As a freelancer or independent contractor, you pay both halves -- a combined rate of 15.3% on your net self-employment income. Wondering how this compares to a regular job? Try the 1099 vs W2 comparison.
The 15.3% rate breaks down into two parts: 12.4% goes to Social Security (on income up to $184,500 in 2026) and 2.9% goes to Medicare (on all income, with no cap). If your net earnings exceed $200,000 as a single filer, you also owe an additional 0.9% Medicare surtax.
How Self-Employment Tax Is Calculated
The IRS applies self-employment tax to 92.35% of your net self-employment income -- not the full amount. This adjustment accounts for the employer-equivalent portion of the tax. Here is the step-by-step calculation:
- Start with your gross 1099 income
- Subtract all deductible business expenses to get net income
- Multiply net income by 92.35% to get the SE tax base
- Apply the 15.3% SE tax rate to that base
- Deduct half of the SE tax from your gross income (this reduces your income tax)
- Calculate federal income tax on the remaining taxable income
Ways to Reduce Your Self-Employment Tax
The most effective strategy is to maximize your business deductions. Every dollar you deduct reduces your net income, which directly reduces your SE tax. Common deductions for freelancers include:
- Home office deduction -- $5 per square foot, up to 300 sq ft ($1,500 max)
- Health insurance premiums -- 100% deductible if self-employed
- Retirement contributions -- SEP-IRA (up to 25% of net income) or Solo 401(k)
- Business equipment -- Computers, software, phones, monitors
- Mileage -- 70 cents per mile for business driving in 2026
- Internet and phone -- Business percentage of your bills
Use the Freelance Tax Deduction Estimator to calculate your total deduction amount and see how much it lowers your tax bill. Once you know your rate, the Quarterly Tax Payment Calculator helps you plan each payment with exact due dates.