Self-employment tax is Social Security and Medicare for people who work for themselves: sole proprietors, independent contractors, general partners, and most active LLC members. The 2026 rate is 15.3%, and for many profitable freelancers it is a bigger bill than income tax. It is computed on Schedule SE, attached to Form 1040, and it exists because a self-employed person pays both the employee and the employer halves of FICA.
How Schedule SE computes the tax
The tax applies once net earnings from self-employment reach $400 for the year. Net profit from Schedule C (or a partner's self-employment income from a Schedule K-1) is multiplied by 92.35%, a haircut that stands in for the employer half of FICA an employee never pays tax on. The adjusted figure is then taxed at 12.4% for Social Security up to the annual wage base and 2.9% for Medicare with no cap.
Wages from a W-2 job count against the same Social Security wage base first, so someone with a day job and a side business may owe only the 2.9% Medicare piece on business profit once wages have filled the base. An additional 0.9% Medicare tax applies above $200,000 of combined wages and self-employment earnings ($250,000 married filing jointly), computed on Form 8959. Half of the self-employment tax is deductible above the line on Form 1040, which softens the income tax but not the SE tax itself. And because no one withholds it, the tax is paid through the year with quarterly estimated payments on Form 1040-ES, not in one April lump.
2026 figures
The 2026 rate is 15.3%: 12.4% Social Security plus 2.9% Medicare. The Social Security wage base was $176,100 for 2025; the SSA announces each year's base the preceding October, so confirm the current figure there rather than assuming. The 0.9% additional Medicare thresholds, $200,000 single and $250,000 joint, are set by statute and not indexed. The $400 minimum has been unchanged for decades. A useful shorthand: below the wage base, every additional $1,000 of net profit costs about $141 of self-employment tax (15.3% of 92.35%) before any income tax.
For creators and the self-employed
Every net dollar of independent income is in scope: brand deals reported on Form 1099-NEC, ad revenue, platform payouts, digital product sales, coaching and consulting fees. Whether a platform issued a 1099-K, a 1099-NEC, or no form at all changes nothing; the income is taxable, and self-employment taxable, when earned. Multiple activities combine onto one Schedule SE, so a loss in one venture offsets profit in another before the tax is computed.
Expenses are the everyday lever. Because the tax is charged on net profit, every legitimate Schedule C deduction (equipment, software, contractors, home office, mileage) saves about 14 cents of self-employment tax per dollar on top of the income tax savings. That is why expense tracking pays even for someone whose income tax bracket is low. The structural lever is the S corporation: profit paid out as shareholder distributions above a reasonable W-2 salary is not subject to SE tax or FICA. The election adds payroll, a separate Form 1120-S, and scrutiny of the salary figure, so it typically starts paying for itself somewhere around $80,000 to $100,000 of consistent annual profit, judged case by case.
Mistakes that cost money
Pricing and saving as if only income tax existed. A creator netting $100,000 owes about $14,130 of self-employment tax before a dollar of income tax; discovering that in April usually adds an underpayment penalty on top.
Assuming no 1099 means no tax. The 1099-NEC and 1099-K thresholds govern the payer's paperwork, not your liability; unreported platform income is still fully taxable and shows up when the IRS matches records.
Skipping deductions in a low-income year. Even when the standard deduction wipes out income tax entirely, SE tax still applies from the first $400 of profit, so unclaimed expenses still cost real money.
Missing quarterly estimates. SE tax has no withholding; the four Form 1040-ES dates, generally April 15, June 15, September 15, and January 15, are how it gets paid without penalty, and each installment should include the SE tax on that period's profit.
Electing S corporation status too early. Below roughly $60,000 to $80,000 of steady profit, payroll and compliance costs can eat the SE tax saved; run the numbers before filing Form 2553.
What the tax buys you
Self-employment tax is not pure loss. The Social Security portion posts earnings to your record with the SSA, building retirement and disability credits exactly as W-2 wages do. Aggressively zeroing out profit year after year also zeroes the earnings record, which surfaces decades later as a smaller benefit check. That is a real, if delayed, cost of both over-deducting and of setting an unreasonably low S corporation salary.
Once profit is consistent, the self-employment tax decisions, estimate sizing, entity election, and salary setting, reward an annual hour with a tax professional.