How to Calculate Self-Employment Tax: Step-by-Step

What self-employment tax is

If you work for yourself, nobody withholds Social Security and Medicare tax — so you pay it yourself. Self-employment tax is those two taxes combined — 12.4% for Social Security and 2.9% for Medicare, plus an extra 0.9% on high earnings. An employee only sees half of it, because the employer pays the other half; as your own boss, you pay both halves. On an $80,000 profit the bill is $11,303.64 — $9,161.12 of Social Security and $2,142.52 of Medicare — and you can deduct half of it, $5,651.82, from your income tax.

Step 1: Start with your net profit

The starting point is your net business profit: revenue minus business expenses, the number on your Schedule C. Not your gross takings — the profit after expenses. If you took in $120,000 and spent $40,000 running the business, your net profit is $80,000, and everything below starts from that number.

Step 2: Take 92.35% of it

Here is the key concept: only 92.35% of your profit is subject to self-employment tax. The law shaves off 7.65% first, because that is the employer share of Social Security and Medicare — the self-employed equivalent of the employer share. Multiply your profit by 0.9235 to get your net earnings. On an $80,000 profit the net earnings are $73,880.00. Every rate below applies to that smaller number, not to the full profit.

Step 3: Work out the Social Security piece

The Social Security piece is 12.4% of your net earnings — but only up to the wage base. For 2026 the wage base is $184,500, and any W-2 wages you earned count toward it too. Take the smaller of your net earnings and the wage base minus your W-2 wages, then multiply by 12.4%. On $73,880.00 of net earnings with no W-2 wages, the whole amount counts: $73,880.00 times 12.4% is $9,161.12. Once your combined wages and net earnings pass $184,500, the 12.4% piece stops — that is the wage-base cap.

Step 4: Add the Medicare pieces

The Medicare piece is 2.9% of all your net earnings — there is no wage base, so every dollar counts. On $73,880.00 of net earnings it is $2,142.52. Then check the additional Medicare tax: 0.9% on the part of your net earnings above the threshold — $200,000 if you file single, $250,000 if you file jointly — counting your W-2 wages toward the threshold. On the $80,000 example the wages plus net earnings are $73,880.00, below the threshold, so the additional tax is $0.00. On a $250,000 profit it appears: $277.88 filing single.

Step 5: Add them up and take half off your income tax

Add the three pieces for the total: $9,161.12 plus $2,142.52 plus $0.00 is $11,303.64. That is an effective rate of 14.13% on the $80,000 profit, and the after-tax profit is $68,696.36. Then take half of the total — $5,651.82 — as a deduction from your income tax. It is a deduction, not a credit: it lowers your taxable income by $5,651.82, which saves you your marginal rate times $5,651.82, not $5,651.82 itself.

The worked example

$80,000 profit, no W-2 wages, filing single. Net earnings: $80,000 times 92.35% is $73,880.00. Social Security tax: $73,880.00 times 12.4% is $9,161.12. Medicare tax: $73,880.00 times 2.9% is $2,142.52. Additional Medicare tax: $0.00, because $73,880.00 is below the $200,000 threshold. Total: $11,303.64. Deductible half: $5,651.82. Effective rate: 14.13%. After-tax profit: $68,696.36. Totals are computed from unrounded values, so rounded parts may differ by a cent from their rounded sum.

Working backwards

The profit for a $10,000.00 total SE tax is $70,773.66 (exact 70773.6623); at $70,773.66 the total is $9,999.9997, at $70,773.65 it is $9,999.9983. The profit for a $20,000.00 total SE tax is $141,547.32 (exact 141547.3246); at $141,547.32 the total is $19,999.9994, at $141,547.31 it is $19,999.9979. The profit for a $30,000.00 total SE tax is $254,238.74 (exact 254238.7371); at $254,238.74 the total is $30,000.0001, at $254,238.73 it is $29,999.9998. The W-2 wages at which Social Security tax on SE earnings becomes $0 is $184,500: at $184,500 the Social Security tax is $0.00 and the total is $2,667.94, at $184,499 the Social Security tax is $0.12 and the total is $2,668.06. The profit for an effective rate of exactly 10% is $324,741.55 (exact 324741.5533); at $324,741.55 the effective rate is 10.0000001%, at $324,741.54 it is 10.0000003%. The profit for a $100,000.00 after-tax profit is $116,454.50 (exact 116454.4963); at $116,454.50 the after-tax profit is $100,000.0032, at $116,454.49 it is $99,999.9946.

When W-2 wages change the bill

A W-2 job alongside the freelance work changes the bill in two directions at once. The wages count toward the $184,500 wage base, so they shrink the Social Security piece: with $150,000 of wages the Social Security tax falls to $4,278.00 and the total to $6,635.44. But the wages also count toward the additional Medicare threshold, so they can switch that tax on: with $200,000 of wages the Social Security piece is $0.00, the additional Medicare tax is $664.92, and the total is $2,807.44. Filing jointly helps at the top: on a $250,000 profit the total is $29,573.38 jointly against $29,851.25 single. The $250,000 single total of $29,851.25 is computed from unrounded values — the rounded parts sum to $29,851.26.

Mistakes that overstate your bill

Do not apply the rates to your full profit: the 92.35% adjustment saves you 7.65% of the bill before you start — on $80,000 it is the difference between $73,880.00 of taxable earnings and $80,000. Do not forget the wage-base cap: once combined wages and net earnings pass $184,500, the 12.4% Social Security piece stops, so the effective rate falls as profit rises — at $500,000 it is only 7.72%. Do not treat the deductible half as a credit: it lowers your income tax by your marginal rate times $5,651.82, not by $5,651.82. And do not confuse SE tax with income tax — the $11,303.64 is the SE tax alone.

How this connects

Run your own numbers with the self-employment tax calculator; for the quarterly payments the bill turns into, see the estimated quarterly tax calculator; for the wage base itself, see the 2026 Social Security wage base page.