How to Calculate Self-Employment Tax in 2026
If you're self-employed and haven't heard of the 15.3% tax, you're about to get a nasty surprise. Self-employment tax is what freelancers, contractors, and gig workers pay instead of the FICA that gets split between employees and employers. You pay both halves. On $72,000 in net income, that's over $10,000. before income tax.
Kwame is a freelance videographer in Austin who earned $90K in revenue last year. Here's how his SE tax actually works, and what he's doing to reduce it.
What Is Self-Employment Tax?
When you work for an employer, Social Security and Medicare taxes (FICA) are split 50/50 between you and your employer. You pay 7.65%, they pay 7.65%. When you're self-employed, you're both the employee and the employer. You pay the full 15.3%.
| Component | Rate |
|---|---|
| Social Security | 12.4% (up to $168,600) |
| Medicare | 2.9% (no cap) |
| Total | 15.3% |
This is separate from income tax. It's on top of whatever you owe in federal and state taxes.
Kwame's SE Tax Calculation
The IRS doesn't apply the 15.3% to your full revenue. First, you subtract business expenses. Kwame had $90,000 in revenue and $18,000 in expenses (camera equipment, editing software, travel, home office). His net self-employment income is $72,000.
Then the IRS multiplies by 92.35% (to account for the employer-equivalent portion): $72,000 × 0.9235 = $66,492.
SE tax: $66,492 × 15.3% = $10,173.
Kwame owes $10,173 in self-employment tax. before a single dollar of income tax.
But Wait. There's a Deduction
Kwame can deduct half of his SE tax from his gross income when calculating income tax. That's $5,087 off the top. This doesn't reduce the SE tax itself. it reduces his income tax. At the 22% bracket, this saves him about $1,119 in federal income tax.
Kwame's Full Tax Picture
| Amount | |
|---|---|
| Gross revenue | $90,000 |
| Business expenses | –$18,000 |
| Net SE income | $72,000 |
| Self-employment tax | –$10,173 |
| Federal income tax | –$7,200 |
| Texas state tax | $0 |
| Take-home pay | $54,627 |
$54,627 on $90K revenue. That's an effective total tax rate of 24% on net income, and 39% of his total tax bill is self-employment tax alone.
How Kwame Is Reducing His SE Tax
Kwame's accountant told him to form an S-Corp. Here's why: as a sole proprietor, all $72,000 in net income is subject to SE tax. As an S-Corp, Kwame pays himself a "reasonable salary" of $50,000 and takes the remaining $22,000 as a distribution. SE tax only applies to the salary.
| SE Tax | |
|---|---|
| Before S-Corp (on $66,492) | $10,173 |
| After S-Corp (on $50,000) | $7,065 |
| Annual savings | $3,108 |
The S-Corp has costs (about $500–$1,500/year in filing and payroll fees), but at Kwame's income level, the math clearly works.
Quarterly Payments: Don't Get Surprised
Unlike W-2 employees who have taxes withheld every paycheck, Kwame owes quarterly estimated payments to the IRS: April 15, June 15, September 15, and January 15. If he doesn't pay quarterly, he'll owe a penalty at tax time. His accountant calculates each payment at roughly $4,300 based on last year's income.
Frequently Asked Questions
How much is self-employment tax in 2026?
15.3% on 92.35% of your net self-employment income. That breaks down to 12.4% for Social Security (up to the wage cap) and 2.9% for Medicare (no cap).
Can I reduce self-employment tax?
Yes. Business deductions reduce your net income (and therefore SE tax). Forming an S-Corp lets you split income between salary and distributions: only the salary portion is subject to SE tax. At $60K+ in net income, the S-Corp savings typically outweigh the costs.
When do I have to pay self-employment tax?
Quarterly. The IRS requires estimated payments on April 15, June 15, September 15, and January 15. If you owe more than $1,000 at tax time and didn't pay quarterly, you'll face a penalty.