Self-Employment Tax Explained: The 15.3% Rate, the $400 Rule and the 2026 Wage Base
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How we wrote this: A summary of IRS Tax Topic 554, the IRS self-employment tax page and the Social Security Administration's wage base table (linked below), checked October 29, 2026. It is general information, not tax advice.
When you work for an employer, Social Security and Medicare taxes come out of each paycheck, and your employer pays a matching share. When you work for yourself, you pay both halves. That's self-employment (SE) tax, and for many freelancers and sole proprietors it is a bigger bill than income tax.
Who has to pay it
IRS Tax Topic 554 says you're self-employed for this purpose if you are a sole proprietor (including an independent contractor), a partner in a partnership (including a member of a multi-member LLC taxed as a partnership), or otherwise in business for yourself. A single-member LLC that is disregarded for tax purposes counts as a sole proprietor.
You usually must pay SE tax and file Schedule SE if your net earnings from self-employment were $400 or more. The IRS notes the rules apply at any age, even if you already receive Social Security or Medicare.
The rate
The IRS self-employment tax page puts the rate at 15.3%:
- 12.4% for Social Security, on earnings up to the annual wage base.
- 2.9% for Medicare, on all net earnings, with no cap.
An additional 0.9% Medicare tax applies when your wages and self-employment income (with your spouse's, on a joint return) exceed $200,000 for single filers, $250,000 for married couples filing jointly and $125,000 for married filing separately.
The 92.35% rule
You don't pay 15.3% on your whole profit. Topic 554 says the amount subject to SE tax is generally 92.35% of your net earnings from self-employment. Net earnings are your business income minus your ordinary and necessary business expenses.
The Social Security wage base
The 12.4% Social Security part stops at a yearly limit. The SSA's contribution and benefit base table lists:
| Year | Wage base |
|---|---|
| 2025 | $176,100 |
| 2026 | $184,500 |
| 2027 | $192,300 |
The limit covers wages and self-employment income combined. The IRS page says that if your wages and tips from a job already reach the limit, you don't pay the 12.4% Social Security part on any of your self-employment earnings, though the 2.9% Medicare part still applies.
A worked example
Say your 2026 Schedule C shows $50,000 of net profit, and you have no other income:
- $50,000 × 92.35% = $46,175 subject to SE tax.
- $46,175 × 15.3% = $7,064.78 in self-employment tax.
- You can deduct half of it, $3,532.39, when figuring your adjusted gross income.
At higher incomes the Social Security part stops at the wage base. On $200,000 of 2026 net profit, 92.35% is $184,700. That's just above the $184,500 base, so the 12.4% applies to $184,500 and the 2.9% applies to the full $184,700. The additional 0.9% Medicare tax may also apply, depending on your filing status and total income.
The deduction for half of SE tax
Topic 554 says you can deduct one-half of your self-employment tax when figuring adjusted gross income on Form 1040. The IRS page adds that this deduction lowers your income tax only. It doesn't lower your net earnings from self-employment or the SE tax itself.
How to pay it
- Figure it on Schedule SE and carry it to Form 1040.
- You need a Social Security number or an ITIN.
- Because no employer withholds it, most self-employed people pay it during the year through estimated tax payments. See estimated quarterly taxes for the self-employed.
Ways people legally lower it
- Track every business expense. SE tax is based on net profit. Our guides to the 2026 mileage rate and the home office deduction cover two common ones.
- Know how your structure is taxed. Different business structures are taxed differently; see choosing a business structure, and get professional advice before changing yours for tax reasons.
- Optional methods for low-income years. Topic 554 notes two optional methods that may help if you had a loss or small income, for example to keep earning Social Security credits. The Schedule SE instructions explain who qualifies.