US Self-Employment Tax: The 15.3% Explained (2025)

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US self-employment tax is the price of being your own boss for Social Security and Medicare. This guide explains the 15.3% SE tax rate, how it covers both halves of FICA, the $176,100 Social Security base for 2025, the deduction for half the tax, and how the self-employed calculate and pay it alongside income tax.

What is self-employment tax?

Self-employment tax is the Social Security and Medicare tax paid by people who work for themselves — sole proprietors, freelancers, independent contractors and partners. Because there’s no employer to pay the matching half, the self-employed pay both the employee and employer shares, making the combined rate 15.3% on net earnings: 12.4% for Social Security and 2.9% for Medicare.

This is separate from income tax. A self-employed person owes both income tax on their profit and self-employment tax to fund their Social Security and Medicare benefits. SE tax often surprises new freelancers, who may budget for income tax but overlook the additional 15.3%, leading to an unexpectedly large tax bill at year-end.

How is self-employment tax calculated?

SE tax is calculated on net earnings from self-employment — your business profit after expenses. You apply 12.4% Social Security tax up to the $176,100 wage base (for 2025) and 2.9% Medicare tax on all net earnings, with no Medicare cap. The calculation is done on Schedule SE, attached to your Form 1040. Net earnings are first multiplied by 92.35% before applying the rates.

The 92.35% adjustment reflects that employees don’t pay FICA on the employer’s share, roughly equalizing treatment. For 2025, the maximum Social Security portion of SE tax is $21,836.40 (12.4% of $176,100). Above the wage base, only the 2.9% Medicare portion continues, plus the additional 0.9% Medicare tax for high earners on income above the relevant threshold.

Can I deduct part of the self-employment tax?

Yes — you can deduct half of your self-employment tax as an above-the-line deduction on Form 1040, reducing your adjusted gross income. This deduction reflects the employer half of the tax, which a regular employer would deduct as a business expense. It’s available whether or not you itemize, lowering your income tax even as you pay the full SE tax.

This deduction partly offsets the burden of paying both halves, putting the self-employed on a more level footing with employees. It reduces income tax but not the SE tax itself. For anyone with self-employment income, claiming this deduction is automatic in tax software but important to understand, as it meaningfully softens the impact of the 15.3% rate.

Who has to pay self-employment tax?

You generally owe SE tax if your net earnings from self-employment are $400 or more in a year. This covers sole proprietors filing Schedule C, partners in a partnership, members of an LLC taxed as a sole proprietorship or partnership, and independent contractors receiving 1099 income. Gig workers, freelancers and side-business owners are all typically subject to SE tax.

The $400 threshold is low, so most people with meaningful self-employment income owe SE tax. Even a side hustle alongside a W-2 job can trigger it on the self-employment portion. Understanding whether your work counts as self-employment — versus employment, where FICA is withheld — is essential, as it determines whether you owe this additional 15.3% on your earnings.

How do S corporations reduce self-employment tax?

One reason self-employed business owners consider forming an S corporation is to reduce SE tax. An S-corp owner pays themselves a reasonable salary (subject to FICA) and can take additional profit as distributions, which aren’t subject to self-employment tax. This can save significant SE tax compared with a sole proprietorship where all profit is subject to the 15.3%.

The catch is that the salary must be ‘reasonable’ for the work performed — the IRS scrutinizes S-corps that pay artificially low salaries to dodge payroll tax. The strategy also adds administrative cost and complexity. For profitable businesses, though, the SE tax saving can outweigh these, which is why the S-corp election is a common tax-planning move, covered in our business tax guide.

A practical example: a freelancer’s SE tax

Imagine a freelancer with $60,000 of net self-employment income in 2025. After the 92.35% adjustment, SE tax applies to about $55,410. At 15.3%, that’s roughly $8,478 of self-employment tax — on top of income tax. They can deduct half, about $4,239, against their income, reducing their income tax but not the SE tax itself.

So this freelancer owes around $8,478 in SE tax plus income tax on their profit (reduced by the half-SE-tax deduction). The example shows why self-employment is more heavily taxed on the payroll side than employment, and why setting aside money for SE tax — not just income tax — is essential for anyone working for themselves.

What expenses reduce self-employment tax?

Self-employment tax is calculated on net earnings — profit after business expenses — so legitimate business deductions reduce both income tax and SE tax. Every dollar of deductible expense lowers the net profit subject to the 15.3% SE tax as well as income tax, making expense tracking especially valuable for the self-employed. Common deductions include supplies, equipment, home office, vehicle and professional costs.

This dual benefit — cutting both income and SE tax — means meticulous expense records pay off more for the self-employed than for employees. Maximizing legitimate deductions directly shrinks the SE tax base. For anyone working for themselves, keeping thorough records of every business expense throughout the year is one of the most effective ways to manage the combined income and self-employment tax burden.

How do retirement plans help the self-employed?

The self-employed have access to powerful retirement plans — SEP-IRAs, solo 401(k)s and SIMPLE IRAs — that allow larger contributions than ordinary IRAs. Contributions reduce taxable income (lowering income tax, though generally not SE tax), and the accounts grow tax-deferred. A solo 401(k) in particular lets a self-employed person contribute both as ’employee’ and ’employer’, maximizing tax-advantaged savings.

These plans turn some of the self-employment tax burden into an opportunity, letting business owners shelter substantial income for retirement while cutting their current income tax. For profitable self-employed individuals, choosing and funding the right retirement plan is among the most valuable tax moves available, combining current tax savings with long-term wealth building, as our retirement tax guide explores.

How do I budget for self-employment tax?

Because no employer withholds taxes for the self-employed, budgeting for SE tax is essential. A common rule of thumb is to set aside 25-30% of net profit for combined income and self-employment tax, kept in a separate account, so the money is ready for quarterly estimated payments. The exact percentage depends on your income level and other circumstances.

Disciplined saving prevents the year-end crunch that catches many new freelancers, who spend their full earnings only to face a large combined tax bill. Treating a portion of every payment as ‘not yours’ — earmarked for tax — is the single most important financial habit for the self-employed. Combined with making quarterly estimated payments, it keeps both income and SE tax manageable.

Why understanding SE tax is essential for the self-employed

Self-employment tax is often the biggest surprise for new business owners and the single largest factor making self-employment more heavily taxed than realized. Understanding the 15.3% rate, the half-tax deduction, the wage base, and how expenses and retirement plans reduce the burden is fundamental to running a profitable self-employed venture and avoiding nasty surprises.

It also informs bigger decisions — whether to incorporate, elect S-corp status, or stay a sole proprietor — since SE tax is central to that math. For anyone earning self-employment income, from a side hustle to a full business, mastering SE tax is essential both to compliance and to structuring their work tax-efficiently, which is why it sits at the heart of self-employed tax planning.

How does SE tax interact with having a W-2 job?

If you have both a W-2 job and self-employment income, the Social Security portion of your SE tax interacts with the FICA already withheld from your wages. Because the Social Security wage base ($176,100 in 2025) is a combined ceiling, wages already taxed for Social Security reduce the self-employment income still subject to the 12.4% Social Security portion — though Medicare still applies to all of it.

This prevents double-paying Social Security tax above the wage base across two income sources. For someone with high W-2 wages plus a side business, much or all of the Social Security portion may already be covered by their job, leaving mainly the Medicare portion on their self-employment income. Schedule SE handles this coordination, ensuring the combined Social Security tax respects the single annual wage base.

Why is the half-SE-tax deduction so important?

The deduction for half the self-employment tax is one of the most valuable adjustments available to the self-employed, yet it’s easy to overlook its significance. By deducting the employer-equivalent half above the line, it reduces adjusted gross income, which not only cuts income tax but can also help preserve eligibility for credits and deductions that phase out at higher AGI levels.

This makes the deduction doubly useful — direct income tax savings plus protection of AGI-based benefits. It partly compensates the self-employed for shouldering both halves of FICA, putting them closer to parity with employees. For anyone earning self-employment income, ensuring this deduction is claimed is essential, and understanding it clarifies that the effective burden of the 15.3% is somewhat softened by the income tax saving it generates.

How does SE tax compare across business structures?

How much self-employment or payroll tax you pay depends on your business structure. A sole proprietor or single-member LLC pays SE tax on all net profit. A partnership passes SE tax to the partners on their shares. An S corporation lets owners split income between salary (subject to FICA) and distributions (not subject to SE tax), potentially reducing the payroll tax burden on profits.

This makes business structure a key lever in managing self-employment tax. As profits grow, the SE tax savings from an S-corp election can become significant, though they must be weighed against added costs and the reasonable-salary requirement. Understanding how SE tax differs across structures is central to choosing the right entity, a decision our business tax guide examines in detail for profitable self-employed individuals.

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