Self-Employment Tax Explained: How 1099 Workers Are Taxed
By the FiscalData.US editorial team · Updated October 2026 · 10 min read · Sources & methodology
When you work as an employee, Social Security and Medicare are split: you pay 7.65% and your employer quietly pays another 7.65%. When you work for yourself, you are both the employee and the employer, so you pay both halves. That combined charge is self-employment (SE) tax, and it is the single biggest surprise for new freelancers, independent contractors and gig workers. It is separate from — and in addition to — federal income tax.
Who Owes Self-Employment Tax
You owe SE tax if your net earnings from self-employment are $400 or more for the year. That includes sole proprietors, single-member LLCs taxed as sole proprietorships, partners in most partnerships, and anyone receiving Form 1099-NEC or 1099-K income from clients or platforms such as rideshare and delivery apps. The tax is calculated on Schedule SE and reported on Form 1040.
The Rate: 15.3%
| Component | Rate | Applies to |
|---|---|---|
| Social Security | 12.4% | Net SE earnings up to the annual wage base |
| Medicare | 2.9% | All net SE earnings |
| Additional Medicare | 0.9% | Earnings above $200,000 (single) / $250,000 (joint) |
The Social Security wage base is shared with any W-2 wages. If you have a day job that already pays Social Security on wages near the cap, only the remaining room is subject to the 12.4% on your side income.
The 92.35% Rule
SE tax is not charged on your full profit. You first multiply net profit by 92.35% (that is, 100% minus 7.65%). This mirrors the fact that an employee never pays FICA on the employer's share. The resulting figure is your "net earnings from self-employment."
Step-by-Step Example
Maya is a freelance designer with $80,000 in revenue and $12,000 in business expenses.
| Step | Calculation | Amount |
|---|---|---|
| Net profit (Schedule C) | $80,000 − $12,000 | $68,000 |
| Net SE earnings | $68,000 × 92.35% | $62,798 |
| SE tax | $62,798 × 15.3% | $9,608 |
| Deduction for half of SE tax | $9,608 ÷ 2 | $4,804 |
Maya owes about $9,608 in SE tax, plus federal income tax on her profit after the $4,804 deduction, the standard deduction and potentially the QBI deduction. Run your own numbers in our self-employed tax calculator.
Deductions That Lower the Bill
Business expenses
Every legitimate, ordinary and necessary business expense reduces both income tax and SE tax, because it lowers net profit before the 92.35% step. Common ones: software and equipment, a home office used regularly and exclusively for business, business mileage (at the IRS standard mileage rate) or actual vehicle costs, professional fees, internet and phone (business portion), and health insurance premiums for self-employed people (an income-tax deduction, not an SE-tax one).
Half of SE tax
Deducted as an adjustment to income on Schedule 1, whether or not you itemize. It reduces income tax only.
Qualified Business Income (QBI) deduction
Many sole proprietors can deduct up to 20% of qualified business income under Section 199A, subject to income limits and restrictions for certain service businesses at higher incomes. It reduces income tax but not SE tax.
Retirement contributions
A SEP-IRA or Solo 401(k) can shelter a substantial share of self-employment income from income tax.
Paying During the Year
No one withholds tax from a 1099 check, so the IRS expects you to pay as you go through quarterly estimated payments if you expect to owe $1,000 or more. Our quarterly estimated taxes guide explains the deadlines and safe-harbor rules. A practical rule of thumb many freelancers use is to set aside 25–30% of every payment received, adjusting for their bracket and state.
Does an S Corporation Help?
An S corp owner pays a "reasonable salary" through payroll (subject to FICA) and can take remaining profit as distributions that are not subject to SE tax. The savings can be real at higher profits, but payroll, a separate return, state fees and accounting costs eat into them, and the IRS scrutinizes unreasonably low salaries. It is a decision worth making with a CPA, not from a calculator alone.
Frequently Asked Questions
Do I pay SE tax if I also have a W-2 job?
Yes, on your self-employment profit. Only the Social Security portion is limited by the combined wage base.
Does SE tax count toward my Social Security benefits?
Yes. SE tax earns you Social Security credits and is part of your future benefit calculation — under-reporting income reduces your benefits.
What if my business has a loss?
No SE tax is due on a net loss, and the loss can generally offset other income for income tax purposes.
Sources & legal references
Figures in this guide were checked by the FiscalData.US editorial team against these primary sources and, where relevant, state revenue department notices. See our methodology & update policy.
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FiscalData.us provides estimates for informational purposes only and is not financial or tax advice. The information in this guide is general in nature, does not consider your personal circumstances and does not create a client relationship. FiscalData.US is not responsible for decisions made based on this content.