CashoutGlossary / Self-employment tax
Self-employment tax
Social Security and Medicare tax on your own business profit: 15.3% on 92.35% of net earnings, owed once those earnings reach $400 for the year.
Self-employment tax is the self-employed version of FICA. An employee and an employer each pay 7.65%. When you work for yourself you pay both halves: 15.3%, made up of 12.4% for Social Security and 2.9% for Medicare.
It applies to 92.35% of your net profit, not the full amount, so the effective rate on profit is about 14.1%. You owe it when net earnings from self-employment are $400 or more. The Social Security part stops at $184,500 for 2026, and your W-2 wages and tips count toward that limit. You figure it on Schedule SE and deduct half of it from your income.
For tipped workers it lands on 1099 income: delivery and rideshare earnings, app tips included, and money from your own clients if you rent a chair or work private events. It often surprises people more than income tax. Once you pass $400, it applies from the first dollar of profit, and the standard deduction doesn't reduce it.
Common mistake: counting on No Tax on Tips to cover it. The tips deduction is claimed on Schedule 1-A, not Schedule C, so it does not lower self-employment tax. Plan for it with quarterly estimated payments.
Related terms
Schedule SE · FICA · Deductible part of self-employment tax · Quarterly estimated tax · Independent contractor
