FREQUENTLY ASKED QUESTIONS ABOUT: Self-Employment Tax
What is self-employment tax?
It’s the combination of Social Security and Medicare taxes every worker pays. W-2 employees split this cost with their employer, each paying half. As a self-employed individual, you cover the full amount yourself, acting as both employer and employee.
Social Security
(12.4%)
Applies to the first $180,000 of net self-employment earnings.
Medicare
(2.9%)
Applies to all net earnings — no income cap.
Additional Medicare
(0.9%)
Applies above $200,000 (single) or $250,000 (married filing jointly).
What are the 2026 rates?
Combined rate: 15.3% on the first $180,000, and 2.9% (or 3.8%) above that.
Are there deductions to offset my self-employment tax?
- 50% SE Tax Deduction: You can deduct half your self-employment tax from your gross income, lowering your federal income tax.
- QBI Deduction (Sec. 199A): You may deduct up to 20% of qualified business income, subject to income limits. Ask your advisor if you qualify.
Do I need to pay taxes throughout the year?
Yes. Self-employed individuals need to make quarterly estimated tax payments. A general guideline is to set aside 25–30% of net income. Key due dates: April 15, June 16, September 15, and January 15 of the following year. Missing payments can result in IRS underpayment penalties.
Does paying more Social Security tax increase my benefit?
No. Your Social Security retirement benefit is calculated the same way as any W-2 worker, based on your 35 highest-earning years. Paying more tax does not yield a proportionally larger benefit, which makes independent retirement planning (SEP-IRA, Solo 401(k)) especially important for self-employed individuals.
What’s the best way to stay on top of self-employment taxes?
- Track income and expenses: Consistent record keeping maximizes deductions and simplifies quarterly estimates.
- Keep a dedicated tax savings account: Set aside a percentage of every payment you receive.
- Pay quarterly on time: Avoid penalties by meeting each due date.
- Work with your advisor: Business structure, retirement accounts, and income timing strategies can significantly reduce your tax burden.
For a deeper dive into this topic, watch Andrew Rose explain it in this short video.