Self-Employment Tax

Self-employment (SE) tax is the 15.3% Social Security and Medicare tax that self-employed people pay on their net earnings under IRC §1401. It is the self-employed equivalent of the FICA tax that a W-2 employer would otherwise split with the employee.

The mechanics.

1. Take net profit from Schedule C.
2. Multiply by 92.35% (this 7.65% haircut is the technical reflection of the employer-share deduction in IRC §1402(a)(12)).
3. On that base:
   • 12.4% Social Security, up to the 2026 wage base of $184,500 (SSA, October 24, 2025 announcement) — capping the SS portion at $22,878.
   • 2.9% Medicare, with no cap.
   • 0.9% Additional Medicare Tax under IRC §1401(b)(2) on net SE earnings above $200,000 (single) or $250,000 (married filing jointly), reported on Form 8959.

The above-the-line deduction. IRC §164(f) lets you deduct half of your SE tax on Schedule 1 to arrive at AGI. This is not the SE tax itself going away — it’s the income-tax acknowledgment that you paid the employer’s half too.

Worked example. Andre nets $30,000 on Schedule C in 2026.

• Step 1: $30,000 × 0.9235 = $27,705 (SE base)
• Step 2: $27,705 × 0.153 = $4,239 SE tax
• Step 3: $4,239 / 2 = $2,120 deductible above the line on Schedule 1, line 15

Andre’s income-tax calculation begins from $30,000 net profit minus $2,120, or $27,880 — before applying his QBI deduction and standard deduction. The full $4,239 is owed regardless of his income tax bracket; even a freelancer in the 0% income-tax zone owes SE tax.

Why this hurts gig workers most. A W-2 employee earning $30,000 pays 7.65% in FICA ($2,295). A self-employed person earning $30,000 owes nearly twice that. This is why the mileage deduction is so valuable to gig drivers — every $1 of mileage deduction reduces both income tax and SE tax.