Self-Employment Tax: How the Math Actually Works
A plain-words explainer for people who work for themselves, with a small calculator that shows every step.
This page is general information, not tax or legal advice.
The short answer
Self-employment tax is how people who work for themselves pay into Social Security and Medicare.
The rate is 15.3%.
That 15.3% is made of two parts: 12.4% for Social Security and 2.9% for Medicare.
But the tax is not figured on all of your profit. It is figured on 92.35% of your net self-employment earnings.
That is the whole trick. The rest of this page walks through it, step by step.
Who owes it?
You owe self-employment tax if your net self-employment earnings are $400 or more for the year.
“Net earnings” here means your business profit: what is left after business expenses.
The three steps
Step 1: Start with your net profit. Multiply it by 0.9235. That gives you the share of your profit the tax applies to.
Step 2: Multiply that share by 0.153 (that is 15.3%). That is your estimated self-employment tax.
Step 3: You may deduct one-half of your self-employment tax when you figure your income tax. Note what this does and does not do: the deduction is for figuring your income tax. It does not reduce the self-employment tax itself.
A worked example with round numbers
Say your business profit is $10,000.
Step 1: $10,000 × 0.9235 = $9,235. That is the taxable share.
Step 2: $9,235 × 0.153 = about $1,413. That is the estimated self-employment tax.
Step 3: Half of about $1,413 is about $707. That is the amount deductible when figuring income tax.
Try it with your own number
This calculator covers self-employment tax only. It does not figure income tax. No data is stored or sent anywhere — the math runs on this page, in your browser.
Step 1 — Find the taxable share.
Your profit × 0.9235 = taxable share
—
In words: the tax only applies to 92.35% of your net earnings, so we take that share first.
Step 2 — Figure the self-employment tax.
Taxable share × 0.153 = estimated self-employment tax
—
In words: 0.153 is the 15.3% rate — 12.4% for Social Security plus 2.9% for Medicare.
Step 3 — The half you may deduct.
Estimated self-employment tax ÷ 2 = deductible amount
—
In words: you may deduct one-half of your self-employment tax when figuring your income tax. This does not lower the self-employment tax itself.
One limit to know about
The Social Security part of the tax (the 12.4% part) only applies up to a yearly wage cap.
For earnings in 2026, that cap is $184,500.
The Medicare part (the 2.9% part) has no wage cap. It applies to all covered earnings.
Source for the cap: IRS Topic 751, which states: “For earnings in 2026, this base limit is $184,500.”
“How much should I set aside?” — an honest answer
The IRS does not publish an official “set aside X percent” number. The 25–30% figure in blog posts is a rule of thumb, not an IRS rule.
That blog figure is usually trying to cover two different taxes at once: self-employment tax and income tax.
Your income tax depends on your own situation — your total income, your filing status, your deductions, and your credits.
That is why the calculator on this page covers self-employment tax only, and says so.
Paying during the year: estimated tax
When you work for yourself, no boss withholds tax from a paycheck for you.
So many self-employed people pay tax during the year, in four payments. This is called estimated tax.
If you expect to owe $1,000 or more in tax for the year, after subtracting withholding and credits, you generally pay estimated tax.
Form 1040-ES is the IRS form for figuring and paying estimated tax.
The four due dates
| Payment | Due date |
|---|---|
| 1st | April 15 |
| 2nd | June 15 |
| 3rd | September 15 |
| 4th | January 15 of the next year |
If a due date falls on a weekend or a legal holiday, it moves to the next business day.
Watch out: the four periods are uneven. The second period covers only April and May — just two months. The payments are four equal parts of the year’s tax, but the periods they cover are not equal.
A common safe harbor
A common way to avoid an underpayment penalty is to pay at least one of these, whichever is smaller:
- 90% of the tax for this year, or
- 100% of the tax shown on last year’s return — or 110% if last year’s adjusted gross income was over $150,000.
This is general information about how the safe harbor is described in the Form 1040-ES instructions. Your own case may differ.
Sources and freshness
Checked November 2026
Sources: IRS.gov (self-employment tax pages), IRS Topic 751 (Social Security and Medicare withholding rates — source of the 2026 wage base of $184,500), and the IRS Form 1040-ES instructions (estimated tax, due dates, and safe harbor).
This page is general information, not tax or legal advice. If your situation is not simple, talk to a qualified tax professional.