$
Net Profit
$0
Taxable SE Income
$0
Total SE Tax
$0
Formula / Calculation
SE Tax = (Net Profit × 92.35%) × 15.3%
Demystifying Self-Employment Tax
When you are an employee, your employer splits the 15.3% FICA taxes (Social Security and Medicare) with you (7.65% each). When you are self-employed, an independent contractor, or a freelancer, you are responsible for paying both the employer and employee portions, resulting in a 15.3% Self-Employment (SE) tax. This is calculated in addition to your standard income tax.
Components of SE Tax
Social Security Tax
12.4% on the first portion of your net earnings up to the annual wage base limit ($168,600 for 2024).
Medicare Tax
2.9% on all net earnings, without any wage base limit.
Additional Medicare Tax
An extra 0.9% may apply on earnings above a certain threshold (e.g., $200k for single filers).
Tips for Self-Employed Individuals
You can deduct half of your SE tax as an "above-the-line" deduction when calculating your adjusted gross income.
Track every business expense meticulously — lower net profit means lower SE tax AND income tax.
Consider forming an S-Corporation if profits are high. You can pay yourself a "reasonable salary" (subject to SE tax) and take the rest as distributions (exempt from SE tax).
Pay estimated quarterly taxes (Form 1040-ES) to avoid underpayment penalties at year-end.
Frequently Asked Questions
What is the SE tax rate?
The standard SE tax rate is 15.3%, consisting of 12.4% for Social Security and 2.9% for Medicare.
Do I pay SE tax on gross or net income?
You pay SE tax on your net business profit (gross income minus deductible business expenses). Only 92.35% of your net profit is subject to the tax.
How can an S-Corp lower SE tax?
By electing S-Corp status, business owners can split their income into a W-2 salary (subject to 15.3% tax) and shareholder distributions (not subject to the 15.3% tax), potentially saving thousands.