Tax Glossary
Key Tax TermSelf-Employment Tax
Self-employment tax is the tax self-employed workers pay to cover Social Security and Medicare. When you're an employee, your employer pays half of these taxes for you — but when you're self-employed, you pay the full amount yourself.
💡Simple definition
Self-employment tax is the combination of Social Security and Medicare taxes that apply to freelancers, contractors, gig workers, and business owners. It is separate from income tax.
📊What is the tax rate?
Self-employed workers pay:
- •12.4% Social Security tax
- •2.9% Medicare tax
Total = 15.3% on self-employment income
⚠️ High earners may also owe the Additional Medicare Tax of 0.9%.
❓Why do self-employed people pay more?
Employees have FICA taxes split with their employers:
👤Employee pays
7.65%
🏢Employer pays
7.65%
When you're self-employed, you ARE the employer — so you pay both halves yourself.
💰What income is subject to self-employment tax?
Generally applies to:
- ✓Freelancing income
- ✓Side gigs and gig apps (Uber, DoorDash, Instacart)
- ✓1099-NEC income
- ✓Small business profits
- ✓Independent contractor work
You usually see this income on Schedule C when you file your return.
🧮How self-employment tax is calculated
The formula is simple:
- 1.Take your business profit (income − expenses)
- 2.Multiply that amount by 92.35%
- 3.Apply the 15.3% tax rate
💡 The 92.35% rule accounts for the employer-equivalent deduction.
✨You get a tax break for paying it
Even though you pay the full 15.3%, the IRS lets you deduct the "employer half" (7.65%) when calculating your Adjusted Gross Income (AGI).
⚠️ This does NOT reduce how much self-employment tax you owe — but it reduces your income tax.
📝Quick example
You earn $40,000 in self-employment profit.
Step 1: Multiply by 92.35%
$40,000 × 0.9235 = $36,940
Step 2: Apply 15.3%
$36,940 × 0.153 = $5,649 in self-employment tax
📄Where do you report it?
Self-employment tax is calculated on:
- •Schedule SE
- •Schedule C (for business income)
The final amount flows into Form 1040.
Browse More Tax Terms
Explore our complete tax glossary to understand more key concepts and terms.
View Full Glossary→