Self-Employment Tax 2026: Rate, Deductions & How It Works
Employees split Social Security and Medicare taxes with their employer, 7.65% each. The self-employed pay both halves: 15.3% self-employment tax on top of ordinary income tax. It is the tax that surprises every new freelancer in their first April, and it is entirely predictable once you know the three rules that govern it.
The three rules
First, the tax applies to net earnings, not gross receipts: business expenses come off before the 15.3% is calculated. Second, only 92.35% of net earnings is subject to the tax — a rough allowance for the employer half you are also paying. Third, you may deduct half of the self-employment tax from your income tax calculation. On $80,000 of net freelance income: the taxable base is $73,880, SE tax is about $11,303, and roughly $5,652 of that is deducted against income tax.
The Social Security part (12.4%) stops at the annual wage cap; the Medicare part (2.9%) does not, and an additional 0.9% Medicare tax applies at higher incomes. Income tax is separate and additional — a freelancer in the 22% bracket with no deductions beyond the standard one often owes a combined effective rate near 30% of net income. Setting aside 25–30% of every payment, in a separate account, is the habit that makes April boring.
- Estimated taxes are due quarterly (mid-April, June, September, January); underpayment penalties apply even if you pay in full by filing.
- An S-corp election can reduce SE tax by splitting income into salary (taxed) and distributions (not SE-taxed) — worthwhile usually above ~$80–100k of net profit, after accounting costs.
- Retirement contributions (SEP-IRA, Solo 401(k)) reduce income tax but not SE tax; business expenses reduce both.
Questions, answered
Do I pay SE tax if freelancing is a side income?
Yes, on net self-employment income above $400 a year — and any W-2 wages you also earn count toward the Social Security wage cap first.
What counts as a business expense?
Costs that are ordinary and necessary for the work: software, equipment, home office, professional services, mileage. Keep records; the deduction is only as good as its documentation.
Reviewed by Tahir Shehzad, ACMA. Figures are reviewed against the sources on our methodology page. This guide is education, not personal financial advice.