What is Self-Employment Tax and how is it calculated?
Self-Employment (SE) Tax is the combined Social Security and Medicare tax that self-employed individuals pay. Unlike employees who split this cost with their employer (7.65% each), self-employed individuals pay both halves — a total of 15.3%. **2025 SE Tax rates:** - Social Security: 12.4% on net SE income up to $176,100 (the Social Security wage base) - Medicare: 2.9% on all net SE income (no cap) - Additional Medicare Tax: 0.9% on net SE income above $200,000 (single) or $250,000 (MFJ) **How SE Tax is calculated:** 1. Net Schedule C profit × 92.35% = SE Tax base (the 7.65% reduction mimics the employer half-deduction) 2. SE Tax base × 15.3% (up to wage base) + 2.9% (above wage base) = SE Tax 3. You then deduct half of the SE Tax on Schedule 1 Line 15 — reducing your taxable income (but not SE Tax itself) **Example:** Net profit $80,000 → SE Tax base: $80,000 × 0.9235 = $73,880. SE Tax: $73,880 × 15.3% = $11,304. You deduct $5,652 (half) on Schedule 1.
- SE Tax = 15.3% (12.4% SS + 2.9% Medicare) on 92.35% of net SE income
- Social Security portion capped at $176,100 net SE income (2025)
- Additional 0.9% Medicare Tax above $200,000 (single) / $250,000 (MFJ)
- Deduct half of SE Tax on Schedule 1 Line 15 (reduces income tax, not SE tax)
- Paid quarterly via Form 1040-ES