Self-Employment Tax Guide: What You Owe and When

Self-employment tax surprises people in their first profitable year: on top of income tax, you owe Social Security and Medicare contributions on your net earnings, and no employer withholds anything for you. This guide explains how the tax is calculated for the 2026 tax year, how to pay it during the year, and what legitimately lowers it, with worked examples. Figures come from the IRS and the Social Security Administration; check them each year, because the cap and thresholds change.

What "self-employment tax" means

For US taxpayers, self-employment (SE) tax is the Social Security and Medicare tax on net earnings from a business you run as a sole proprietor, independent contractor or member of a partnership. You owe it if your net earnings from self-employment are $400 or more (IRS Topic 554). You calculate it on Schedule SE and file it with Form 1040. Income tax is separate and depends on your brackets, deductions and credits. If you also have W-2 wages, the Social Security cap applies to wages and self-employment earnings combined.

Estimated quarterly payments

You generally must make estimated payments if you expect to owe $1,000 or more for the year after withholding and refundable credits (IRS estimated taxes). Base each payment on actual year-to-date profit rather than a January guess, and after an uneven quarter, adjust the next payment rather than assuming the year will average out.

What reduces your bill (legally)

Ordinary and necessary business expenses lower net profit, and so lower both self-employment tax and income tax. Common categories include software, equipment, professional fees, travel and, when you qualify, a home office. See freelance tax deductions for 15 common deductions with their 2026 limits, and the IRS Self-Employed Individuals Tax Center.

State and local layers

Most states with an income tax also tax self-employment profit, and some cities and counties add their own income or business taxes. Registration rules differ by state and locality, so check with your state revenue department. Sales tax is a separate question about what you sell and where your customers are; see the sales tax nexus guide.

Record-keeping that survives an audit

Use a separate business account, categorize transactions monthly, and keep receipts that show the amount, date and business purpose. The invoices you send document your income; your expense records document what you deduct. Match each significant deduction to a record made at or near the time.

Retirement and health

Contributions to a solo 401(k), SEP-IRA or HSA can reduce your taxable income within annual limits, and self-employed health insurance premiums can be deducted as an adjustment to income. These reduce income tax, not self-employment tax, because they are claimed on Schedule 1 rather than Schedule C. Plan contributions with a tax adviser so you don't miss the deadlines.

If you hire help

Whether someone is a contractor or an employee decides whether you owe payroll taxes for them. The IRS sets out the tests on its independent contractor or employee page. Get advice before you take on regular help.

Invoicing supports clean tax years

Consistent invoice numbering and dates make it easy to show when income was earned and received. Read when to send an invoice so year-end invoices land in the period you intend, and how to invoice for the first time if you are new to formal billing.

Home office and other common deductions

If you qualify, the home office deduction can be meaningful, but the exclusive-use test is strict. Vehicle and travel deductions need a mileage log or equivalent records. When in doubt, claim only what you can prove with records made at the time.

Quarterly versus annual mindset

Finding a large balance due in April is avoidable. Move a set share of every paid invoice into a separate tax savings account, sized from the Form 1040-ES worksheet rather than a rule of thumb, and keep separate pots for federal, state and any sales tax you collect.

Track invoices and payments in one place: start free.

Self-employment tax breakdown (2026)

US self-employment tax for the 2026 tax year (returns filed in 2027):

The Social Security cap was $176,100 for 2025 and is $184,500 for 2026; the Social Security Administration has announced $192,300 for 2027 (SSA contribution and benefit base).

Net earnings from self-employment are your net profit (business income minus business expenses) multiplied by 92.35% (IRS Topic 554). You pay SE tax on that figure, not on gross revenue. Because you pay both the employee and the employer share, you can deduct half of the SE tax as an adjustment to income on Schedule 1 (Publication 334).

Step-by-step: self-employment tax compliance

Step 1: Track every dollar of self-employment income

Report all business income on Schedule C, whether or not a client sends you a Form 1099. Clients who pay you $600 or more for services in 2025 generally file a Form 1099-NEC; for tax years beginning after 2025 the reporting threshold is $2,000, so for 2026 payments many smaller clients won't send one (Instructions for Forms 1099-MISC and 1099-NEC). The income is taxable either way, and the IRS matches the forms it receives against your return.

Step 2: Track every business expense

Schedule C expenses reduce both income tax and SE tax. Worked example: a $5,000 business expense for someone in the 22% bracket cuts SE tax by $5,000 × 92.35% × 15.3% = $706.48. It also cuts income tax by about ($5,000 − $353.24, the smaller SE-tax deduction) × 22% = $1,022.29. The combined saving is about $1,728.76, before any effect on the qualified business income deduction.

Step 3: Pay quarterly estimated taxes

For the 2026 tax year the Form 1040-ES due dates are 15 April 2026, 15 June 2026, 15 September 2026 and 15 January 2027. You generally avoid an underpayment penalty if you pay at least 90% of your 2026 tax, or 100% of your 2025 tax (110% if your 2025 adjusted gross income was over $150,000, or $75,000 if married filing separately), spread across the quarters (IRS estimated taxes). Pay through IRS Direct Pay, your IRS online account or a Form 1040-ES voucher. See the quarterly tax payments guide.

Step 4: Take the deductions specific to self-employment

Beyond ordinary business expenses on Schedule C:

• Half of SE tax (Schedule 1).
• Self-employed health insurance, if you weren't eligible for a subsidized employer plan, limited to the business's net profit (Instructions for Form 7206).
• SEP-IRA or solo 401(k) contributions, up to a combined $72,000 for 2026 (plus catch-up contributions for a solo 401(k)) (IRS COLA limits).
• Home office, if you meet the regular and exclusive use tests.
• Qualified business income deduction, generally up to 20% of qualified business income, with limits above an income threshold that changes each year; Form 1040-ES asks for your estimate of it.

The deductions on Schedule 1 and the QBI deduction lower income tax only. Only Schedule C expenses lower SE tax.

Step 5: File Schedule C and Schedule SE with your Form 1040

Schedule C works out business profit or loss, and Schedule SE works out the SE tax on it. Both are filed with your Form 1040. If you run more than one business, you file a Schedule C for each; your combined self-employment earnings go on one Schedule SE (spouses with their own businesses each file their own).

Common scenarios (2026 figures)

These examples show SE tax only. Income tax depends on your filing status, other income and deductions, so work it out with the Form 1040-ES worksheet or tax software.

First year of self-employment: $80,000 revenue minus $15,000 expenses = $65,000 net profit. Net SE earnings = $65,000 × 92.35% = $60,027.50. SE tax = $60,027.50 × 15.3% = $9,184.21, of which $4,592.11 is deductible as an adjustment to income.

Steady second year: $120,000 net profit × 92.35% = $110,820. SE tax = $110,820 × 15.3% = $16,955.46. Solo 401(k) contributions lower income tax on this profit but not this SE tax.

High earner over the Social Security cap: $250,000 net profit × 92.35% = $230,875. Social Security applies only to the first $184,500: $184,500 × 12.4% = $22,878.00. Medicare applies to all of it: $230,875 × 2.9% = $6,695.38. SE tax = $29,573.38. A single filer with no wages also owes Additional Medicare Tax of 0.9% × ($230,875 − $200,000) = $277.88 on Form 8959.

Side business while employed: $90,000 W-2 wages plus $20,000 freelance net profit. Net SE earnings = $18,470. Wages and SE earnings together ($108,470) are below the $184,500 cap, so SE tax = $18,470 × 15.3% = $2,825.91. Income tax on the side profit comes on top at your marginal rate. You can raise W-2 withholding instead of making estimated payments.

Frequently asked questions

What's the difference between self-employment tax and income tax?

Self-employment tax is the self-employed version of the Social Security and Medicare (FICA) taxes that employees and employers split. A self-employed person pays both halves, 15.3%, on 92.35% of net profit. Income tax is separate and is based on your total taxable income from all sources. You pay both.

What if I had more expenses than income?

Schedule C shows a loss, you owe no SE tax for that business for the year, and the loss can generally reduce your other taxable income, subject to IRS loss limits. If losses continue, the IRS may ask whether the activity is a business or a hobby; it looks at factors such as whether you run it in a businesslike way, keep proper books, and make a profit in some years (IRS Tax Tip 2023-61).

Should I form an LLC or S corporation?

A single-member LLC is by default taxed like a sole proprietorship: you still file Schedule C and pay SE tax, though the LLC can offer liability protection under state law. An S corporation that elects that status must pay a shareholder who works in the business reasonable compensation as wages, which carry payroll taxes; other distributions are not subject to employment taxes (IRS on S corporation compensation). Whether the savings outweigh payroll and accounting costs depends on your profit and state, so model it with an accountant.

What records do I need, and for how long?

Keep receipts and invoices for expenses, any 1099 forms, bank and payment-processor statements showing income, mileage logs if you claim vehicle costs, and your home office calculation. The IRS generally asks you to keep records for 3 years, 6 years if you leave out income of more than 25% of the gross income shown on your return, and 7 years if you claim a loss from worthless securities or a bad debt deduction (IRS: how long should I keep records).

How far back can the IRS audit?

The record-keeping periods above follow the IRS assessment periods: generally 3 years after you file, 6 years for substantial omitted income, and no limit if you don't file or file a fraudulent return (IRS: how long should I keep records). Claim only what you can support with records.

Last reviewed: 28 October 2026. This is general information about US federal self-employment tax for the 2026 tax year, not tax advice. Check the linked IRS and SSA pages or a tax professional for your situation.