What Is Self-Employment Tax? A Plain-English Guide

Self-employment tax is the US federal Social Security and Medicare tax that people who work for themselves pay on their net earnings from self-employment, in addition to income tax. The IRS's self-employment tax page says: "Self-employment tax is a tax consisting of Social Security and Medicare taxes primarily for individuals who work for themselves. It is similar to the Social Security and Medicare taxes withheld from the pay of most wage earners." You figure it on Schedule SE and file it with your Form 1040.

Billed publishes this page. The rules below are US federal rules, quoted from the IRS self-employment tax page (last reviewed or updated June 27, 2026), Topic no. 554, Self-employment tax (last reviewed or updated September 24, 2026), and the 2025 Schedule SE (Form 1040) and its 2025 instructions, all opened on October 30, 2026. The figures are for tax year 2025. This is general information, not tax advice; ask your accountant or a tax professional how the rules apply to you.

Who pays it

The 2025 Schedule SE instructions say: "You must pay SE tax if you had net earnings of $400 or more as a self-employed person. If you are in business (farm or nonfarm) for yourself, you are self-employed."

IRS Topic 554 says: "You're self-employed for this purpose if you're a sole proprietor (including an independent contractor), a partner in a partnership (including a member of a multi-member limited liability company (LLC) that is treated as a partnership for federal tax purposes) or are otherwise in business for yourself."

If you're paid as a contractor, the business that pays you may send you a Form 1099; see what is a 1099 form. If you form a business entity, you may also need an EIN.

The rate

The IRS self-employment tax page says: "The self-employment tax rate is 15.3%. The rate consists of two parts: 12.4% for social security (old-age, survivors, and disability insurance) and 2.9% for Medicare (hospital insurance)."

For 2025, the Schedule SE instructions say: "For 2025, the maximum amount of self-employment income subject to social security tax is $176,100." On the form, the 2.9% Medicare part applies to all of line 6: line 11 says "Multiply line 6 by 2.9% (0.029)".

Topic 554 adds: "Additional Medicare tax applies to self-employment income above a threshold. The threshold amounts are $250,000 for a married individual filing a joint return, $125,000 for a married individual filing a separate return, and $200,000 for all others."

How Schedule SE figures it (2025)

• Net earnings: line 4a says: "If line 3 is more than zero, multiply line 3 by 92.35% (0.9235)." Line 3 combines your net profit from Schedule C and other self-employment income.
• Under $400: line 4c says: "If less than $400, stop; you don't owe self-employment tax."
• Social Security part: line 10 says: "Multiply the smaller of line 6 or line 9 by 12.4% (0.124)". Line 9 is what's left of the $176,100 after any wages subject to social security tax.
• Medicare part: line 11 says: "Multiply line 6 by 2.9% (0.029)".
• Deduction: line 13, "Deduction for one-half of self-employment tax", says: "Multiply line 12 by 50% (0.50)."

On that deduction, the IRS self-employment tax page says: "You can deduct the employer-equivalent portion of your self-employment tax in figuring your adjusted gross income. This deduction only affects your income tax. It does not affect either your net earnings from self-employment or your self-employment tax."

Paying it during the year

The IRS self-employment tax page says: "Employers calculate Social Security and Medicare taxes for most wage earners. However, you calculate self-employment tax (SE tax) using Schedule SE". For paying tax on self-employment income during the year, see quarterly estimated tax. For how employers handle the same taxes for their employees, see what is payroll tax.

Sample: Schedule SE for a freelancer (tax year 2025)

This is a sample with invented figures, for tax year 2025, using the 2025 Schedule SE.

A freelance designer has a net profit of $50,000.00 on Schedule C, no other self-employment income, and no wages subject to social security tax.

1. Line 4a, net earnings: $50,000.00 × 92.35% = $46,175.00. That's $400 or more, so SE tax applies.
2. Line 9: $176,100 − $0 of wages = $176,100. The smaller of $46,175.00 and $176,100 is $46,175.00.
3. Line 10, Social Security part: $46,175.00 × 12.4% = $5,725.70.
4. Line 11, Medicare part: $46,175.00 × 2.9% = $1,339.075, which rounds to $1,339.08.
5. Line 12, self-employment tax: $5,725.70 + $1,339.08 = $7,064.78.
6. Line 13, deduction: $7,064.78 × 50% = $3,532.39, which goes to Schedule 1 when figuring adjusted gross income.

Income tax on the same profit is separate. Ask your accountant or a tax professional to run your own figures.

Where Billed fits

Your Schedule C profit starts from your income and expense records. Billed's expense tracking page says: "Give every expense a category so your spending is already sorted when you file taxes or hand the year to your accountant." It also says reports "can be filtered by date range and exported for your accountant, bookkeeper or tax software." Billed's invoice software page says: "Invoice reports show which invoices are paid, partially paid or past due, and you can see who owes you money and send them a payment reminder." For hourly work, Billed's time tracking page says: "Log time for each task as you work, and see how much time goes into each project." Plans are on Billed's pricing page, calculators are in the tools section, and more tax topics are in the taxes hub.

Related Articles

• What Is Quarterly Estimated Tax?
• What Is Payroll Tax?
• Freelance Taxes: The Complete Guide
• Tax Deductions for Freelancers

Frequently Asked Questions

What is the self-employment tax rate?

The IRS says: "The self-employment tax rate is 15.3%. The rate consists of two parts: 12.4% for social security (old-age, survivors, and disability insurance) and 2.9% for Medicare (hospital insurance)." For 2025, the social security part applies up to $176,100 of combined wages and self-employment income.

Who has to pay self-employment tax?

The 2025 Schedule SE instructions say: "You must pay SE tax if you had net earnings of $400 or more as a self-employed person." IRS Topic 554 counts sole proprietors (including independent contractors), partners in a partnership, and anyone otherwise in business for themselves as self-employed for this purpose.

Why does Schedule SE use 92.35%?

Line 4a of the 2025 Schedule SE says to multiply your net profit by 92.35% (0.9235) to get net earnings from self-employment. The tax rates then apply to that amount, not to the full profit. Ask your accountant how it applies to your return.

Can I deduct part of my self-employment tax?

The IRS says: "You can deduct the employer-equivalent portion of your self-employment tax in figuring your adjusted gross income." On the 2025 Schedule SE, line 13 is one-half of the self-employment tax. The IRS says this deduction affects only your income tax, not your self-employment tax.