The 15.3% Self-Employment Tax Rate — Broken Down
Self-employment tax funds your Social Security and Medicare coverage as a business owner. Unlike W-2 employees who split these taxes with their employer (each pays 7.65%), self-employed individuals pay the full 15.3% themselves — hence the term "self-employment tax."
The 15.3% is not applied to your full Schedule C profit. The IRS applies it to 92.35% of net self-employment income, which approximates the employer-equivalent portion. This is baked into the Schedule SE calculation.
| Component | Rate | 2026 Cap / Threshold |
|---|---|---|
| Social Security (OASDI) | 12.4% | First $184,500 of net SE income |
| Medicare (HI) | 2.9% | No cap — applies to all net SE income |
| Standard SE Tax Rate | 15.3% | Up to $184,500 SS wage base |
| Above $184,500 SS cap | 2.9% | Medicare only (no SS above cap) |
| Additional Medicare Tax | 0.9% | Net SE income > $200K (single) / $250K (MFJ) |
The Self-Employment Tax Formula
Self-employment tax is calculated using your net profit from Schedule C. The formula:
At $100,000 net profit, you pay $14,129 in self-employment tax for 2026. SE tax applies only on net earnings above $400 — if your net profit is below that, no SE tax is owed.
SE Tax at Different Income Levels (2026)
Here's how the 15.3% SE tax scales across common income levels:
The Deductible Half of SE Tax
The IRS gives you one offset for paying SE tax: you can deduct 50% of the SE tax amount from your gross income when calculating your income tax. This goes on Schedule 1, Line 15 (Form 1040) as an above-the-line deduction, reducing your adjusted gross income (AGI).
This deduction does not eliminate SE tax — it just softens the income tax hit. For a self-employed person in the 24% bracket, the 50% deduction saves roughly $0.24 for every $1 of SE tax paid.
Example: At $100,000 net profit, $14,129 SE tax × 50% deduction = $7,065 deductible. At a 24% federal bracket, that saves approximately $1,696 in income tax. Net SE tax burden after deduction benefit: ~$12,433.
How S-Corp Election Reduces SE Tax
The single most effective strategy to reduce SE tax is electing S-Corp status. Instead of paying 15.3% on 100% of net profit, you pay a reasonable salary (subject to FICA/SE tax at 7.65% employer-equivalent rate) and take the remainder as distributions (not subject to SE tax).
| Entity Type | SE Tax on $150K Net Profit | vs. S-Corp |
|---|---|---|
| Sole Prop / LLC (no S-Corp) | $21,185 | +$8,687 (baseline) |
| S-Corp ($60K salary + $90K distributions) | $12,498 | Baseline |
| S-Corp ($80K salary + $70K distributions) | $16,664 | +$4,166 |
At $150,000 net income (single filer, California), S-Corp election saves approximately $8,687/year in SE tax versus sole proprietorship. The savings increase with income but require payroll setup costs and IRS-defined "reasonable salary" rules.
The typical S-Corp breakeven point is $50,000–$80,000 in net self-employment income — below that, payroll costs and compliance may not justify the switch. Use the Entity Comparison Calculator to model your specific situation.