Self-employment ยท Tax year 2026
Self-Employment Tax, Step by Step: How the 15.3 Percent Is Figured
Self-employment tax is the self-employed person's version of the payroll tax that an employer and an employee split between them. It is 15.3 percent: 12.4 percent for Social Security and 2.9 percent for Medicare. It is not figured on your whole profit. The tax applies to 92.35 percent of net earnings, the Social Security part stops at the 2026 wage base of $184,500, which any W-2 wages you have use first, the Medicare part has no cap, and one half of the tax is deducted from income before income tax is figured. If the reduced amount is under $400, no self-employment tax applies at all. This page walks the computation in order, with the arithmetic shown. The 1099 tax calculator runs the same steps on your own figures.
Last reviewed: November 4, 2026.
The figures, in one table
| Self-employment tax rate | 15.3 percent: 12.4 percent for Social Security and 2.9 percent for Medicare (IRS Topic No. 554) |
|---|---|
| Amount the tax is figured on | 92.35 percent of net earnings from self-employment. Net means after business expenses, not gross receipts (IRS Topic No. 554) |
| Social Security wage base, 2026 | $184,500. The 12.4 percent part applies up to this amount of combined wages and self-employment income, and W-2 wages use the base first (Social Security Administration; IRS Topic No. 751) |
| Medicare part | No wage limit. The 2.9 percent applies to all net earnings (IRS Topic No. 554) |
| Additional Medicare Tax | 0.9 percent on combined wages and self-employment income over $200,000, or over $250,000 on a joint return (IRS Topic No. 554; Form 8959) |
| Deduction for half the tax | One half of the self-employment tax is deducted in figuring adjusted gross income (IRS Topic No. 554; Schedule SE) |
| When the tax starts | Net earnings from self-employment of $400 or more, after the 92.35 percent step (IRS Topic No. 554) |
The steps, in order
- Start with net earnings. Net earnings from self-employment are the profit of the business after its ordinary and necessary expenses, the figure a sole proprietor arrives at on Schedule C. Gross receipts are not the starting point; a business with $90,000 of receipts and $30,000 of expenses starts this computation at $60,000.
- Multiply by 92.35 percent. The reduced amount is what the tax is figured on. The step mirrors the employee arrangement: an employee is not taxed on the half of the payroll tax the employer pays from its own funds, so the self-employed base is reduced by that 7.65 percent employer-equivalent share before the rate is applied.
- Apply the two parts of the rate. The Social Security part is 12.4 percent of the reduced amount. The Medicare part is 2.9 percent of the reduced amount. Together they are the familiar 15.3 percent, but they behave differently at the next step, which is why they are figured separately.
- Share the wage base with any W-2 wages. The 12.4 percent part applies only up to $184,500 of combined wages and self-employment income for 2026, and wages from a job use the base first, because Social Security tax was already withheld on them. If your W-2 wages are $170,000, only $14,500 of room is left, and the Social Security part applies to at most $14,500 of your reduced self-employment amount. The 2.9 percent Medicare part ignores the base and applies to the whole reduced amount. Above $200,000 of combined income, or $250,000 on a joint return, the 0.9 percent Additional Medicare Tax is added on the excess.
- Deduct one half of the tax. Half of the total self-employment tax is deducted in figuring adjusted gross income. It lowers the income tax, never the self-employment tax itself, and it is the second half of the parallel with employees, whose employers deduct the half they pay.
- Check the $400 floor. In practice this is checked at step 2: if the amount after the 92.35 percent step is less than $400, no self-employment tax applies, however the rest of the return comes out. A profit of $400 itself produces reduced net earnings of about $369, which is under the floor; the floor is crossed at a profit of roughly $434.
A worked example, in full
A single filer with a business profit of $60,000 and no other income. Every figure below is the calculator's own arithmetic on that case, shown step by step:
| Net self-employment income | $60,000 |
|---|---|
| After the 92.35 percent step | $55,410 |
| Social Security part, 12.4 percent | $6,870.84 |
| Medicare part, 2.9 percent | $1,606.89 |
| Self-employment tax | $8,477.73 |
| Deduction for one half of the tax | $4,238.87 |
| Adjusted gross income | $55,761.14 |
| Taxable income, after the $16,100 standard deduction | $39,661.14 |
| Federal income tax (Revenue Procedure 2025-32 rates) | $4,511.34 |
| The two taxes together | $12,989.07 |
| Effective rate on the $60,000 | 21.65 percent |
Two things the example shows plainly. The self-employment tax, $8,477.73, is larger than the income tax on the same profit, which is the usual shape of a self-employed return at this level. And the half deduction is worth real money inside the income tax: without it, taxable income would be $4,238.87 higher.
the wage base is shared with a W-2 job
The wage base interaction, in figures
The same steps with a job in the picture: W-2 wages of $170,000 and net self-employment income of $40,000, single filer.
| Reduced self-employment amount, 92.35 percent of $40,000 | $36,940 |
|---|---|
| Room left under the $184,500 wage base | $14,500 |
| Social Security part, 12.4 percent of $14,500 | $1,798.00 |
| The same part with no cap would be | $4,580.56 |
| Medicare part, 2.9 percent of $36,940 | $1,071.26 |
| Additional Medicare Tax, 0.9 percent of the $6,940 over $200,000 combined | $62.46 |
| Self-employment tax in total | $2,931.72 |
The cap is worth $2,782.56 in this case, and it is automatic: the wage base is a single ceiling shared by both income sources, not a separate allowance for each.
half of it comes back as a deduction
What this tax is not
- It is not the income tax. Both taxes apply to the same profit, figured separately, and the worked example above shows both. Paying one does not discharge the other.
- It is not figured on gross receipts. Expenses come off first, which is why the expense categories on the Schedule C checklist page matter to this tax as much as to the income tax.
- It is not reduced by the new deductions. The tips deduction under section 224 reduces income tax only; the final regulations state that it does not apply for self-employment tax purposes (T.D. 10044). Retirement plan contributions likewise reduce income tax, not this tax.
- It is not withheld for you. Nothing is taken out of a payment to a contractor during the year, which is what estimated tax payments are for: the quarterly estimated tax calculator splits the year's estimated total across the four IRS payment dates.
Questions and answers
Why is the tax figured on 92.35 percent of profit rather than all of it?
Because an employee is never taxed on the employer's half of the payroll tax. An employer pays 7.65 percent on top of wages from its own funds, and that payment is not income to the employee. Multiplying net earnings by 92.35 percent, which is 100 percent minus that 7.65 percent, puts the self-employed base on the same footing before the 15.3 percent rate is applied, and the deduction for one half of the tax completes the parallel (IRS Topic No. 554; Schedule SE).
I have a job and a side business. Do I pay the Social Security part twice?
No. The 2026 wage base of $184,500 is shared, and W-2 wages use it first. In the worked example on this page, $170,000 of W-2 wages leaves only $14,500 of room under the base, so the Social Security part of the self-employment tax applies to $14,500 of the side income's reduced amount rather than to all of it. The Medicare part has no cap and applies in full either way.
Does the new tips deduction lower my self-employment tax?
No. The deduction for qualified tips under section 224 reduces income tax only. The final regulations state the point expressly: the deduction does not apply for Self-Employment Contributions Act purposes and is not taken into account in determining net earnings subject to self-employment tax (T.D. 10044). A self-employed worker with tips owes self-employment tax on the tips as on any other business income, and takes the tips deduction, if the reporting conditions are met, against income tax.
My business profit was $350. Do I owe self-employment tax?
On those figures, no. The 92.35 percent step reduces $350 to about $323, and net earnings below $400 carry no self-employment tax (IRS Topic No. 554). Income tax is a separate question, figured on the return as a whole, and a small profit can still matter there and for Social Security credits in other situations; this page explains the self-employment tax only.
Sources
- IRS, Topic No. 554, Self-Employment Tax. The 12.4 and 2.9 percent rate parts, the 92.35 percent step, the $400 floor, the Additional Medicare Tax thresholds, and the deduction for one half of the tax. Checked November 4, 2026.
- IRS, Topic No. 751, Social Security and Medicare Withholding Rates; Social Security Administration, Contribution and Benefit Base. The Social Security wage base of $184,500 for 2026. Checked November 4, 2026.
- IRS, Instructions for Schedule SE (Form 1040), Self-Employment Tax, and Publication 334, Tax Guide for Small Business. How net earnings are defined, where the tax is figured, and where the half deduction is claimed. Checked November 4, 2026.
- IRS, Revenue Procedure 2025-32, announced in release IR-2025-103, October 9, 2025. The 2026 rate thresholds and the $16,100 single standard deduction used in the worked example.
- Treasury Decision 10044, April 13, 2026. The section 224 tips deduction does not apply for Self-Employment Contributions Act purposes and is not taken into account in determining net earnings subject to self-employment tax.
Last reviewed: November 4, 2026.