Self-Employment Tax Explained: Complete Guide for Gig Workers
Self-employment tax is one of the biggest surprises for new gig workers. Unlike traditional employees who have FICA taxes withheld from their paychecks, gig workers must pay the full 15.3% self-employment tax on their net earnings. Understanding how this tax works is crucial for accurate tax planning and avoiding underpayment penalties.
This guide explains everything you need to know about self-employment tax in 2026: what it is, how it's calculated, when you pay it, and strategies to minimize its impact on your finances.
Self-Employment Tax Calculator
Calculate your self-employment tax based on your net earnings from gig work.
Gross income minus business expenses (Schedule C Line 31)
For Additional Medicare Tax calculation
What is Self-Employment Tax?
Self-employment tax is a tax that self-employed individuals pay to fund Social Security and Medicare. It's the self-employed equivalent of FICA taxes that traditional employees and employers pay.
Self-Employment Tax Rate: 15.3%
- 12.4% for Social Security (OASDI - Old Age, Survivors, and Disability Insurance)
- 2.9% for Medicare (Hospital Insurance)
- Total: 15.3% on net self-employment earnings
Traditional Employees (W-2)
Employee pays: 7.65% (withheld from paycheck)
Employer pays: 7.65% (not visible to employee)
Total: 15.3% (split between employee and employer)
Gig Workers (Self-Employed)
You pay: 15.3% (full amount)
Employer pays: N/A (you are the employer)
Total: 15.3% (you pay both portions)
How Self-Employment Tax is Calculated
Self-employment tax is calculated on your net earnings from self-employment, not your gross income. Here's the step-by-step calculation:
Step 1: Calculate Net Earnings
Start with your gross income from Schedule C, then subtract business expenses:
Gross Income: $50,000 (from 1099 forms)
Minus Business Expenses: -$15,000 (mileage, phone, supplies, etc.)
Net Profit (Schedule C Line 31): $35,000
Step 2: Multiply by 92.35%
The IRS allows you to deduct the "employer portion" of SE tax before calculating the tax. This is done by multiplying net profit by 92.35% (which is 100% - 7.65%):
Net Profit: $35,000
Multiply by 92.35%: $35,000 0.9235 = $32,323
Self-Employment Income: $32,323
Step 3: Calculate SE Tax (15.3%)
Multiply self-employment income by 15.3%:
SE Income: $32,323
Multiply by 15.3%: $32,323 0.153 = $4,945
Self-Employment Tax Owed: $4,945
?? Quick Formula
SE Tax = Net Profit 0.9235 0.153
Or simplified: Net Profit 0.1413 (approximately 14.13%)
Social Security Wage Base Limit
The Social Security portion (12.4%) only applies to the first $168,600 of net earnings in 2026. Earnings above this amount are only subject to the Medicare portion (2.9%).
2026 Limits
- Social Security wage base: $168,600
- Earnings up to $168,600: Subject to full 15.3% SE tax
- Earnings above $168,600: Subject to 2.9% Medicare tax only
Example: High Earner
Net Profit: $200,000
SE Income ( 92.35%): $184,700
Social Security tax (12.4% on first $168,600): $20,907
Medicare tax (2.9% on all $184,700): $5,356
Total SE Tax: $26,263
Additional Medicare Tax
High earners pay an additional 0.9% Medicare tax on earnings above certain thresholds. This brings the total Medicare tax to 3.8% (2.9% + 0.9%) on the excess amount.
2026 Thresholds
- Single: $200,000
- Married Filing Jointly: $250,000
- Married Filing Separately: $125,000
Example: Additional Medicare Tax
Filing Status: Single
Net Profit: $250,000
SE Income ( 92.35%): $230,875
Regular Medicare (2.9% on all): $6,695
Additional Medicare (0.9% on $30,875 over $200k): $278
Total Medicare Tax: $6,973
The 50% Self-Employment Tax Deduction
Here's the good news: You can deduct 50% of your self-employment tax when calculating your adjusted gross income (AGI). This reduces your income tax, though not your SE tax itself.
?? How the Deduction Works
The 50% deduction represents the "employer portion" of SE tax. Since traditional employers deduct their 7.65% contribution, self-employed individuals get to deduct half of their 15.3% SE tax.
This deduction is taken on Form 1040, Schedule 1, Line 15it's an "above-the-line" deduction, meaning you get it even if you take the standard deduction.
Example: Tax Savings from 50% Deduction
Self-Employment Tax Owed: $5,000
50% Deduction: $2,500
Your Tax Bracket: 24%
Income Tax Savings: $2,500 24% = $600
While you still pay the full $5,000 in SE tax, the $2,500 deduction saves you $600 in income tax
Self-Employment Tax vs. Income Tax
Many gig workers confuse self-employment tax with income tax. They're separate taxes that you pay on the same income.
Self-Employment Tax
- Rate: 15.3% (fixed)
- Purpose: Social Security & Medicare
- Calculated on: Net self-employment income
- Reported on: Schedule SE
- Minimum: $400 net earnings
Income Tax
- Rate: 10-37% (progressive brackets)
- Purpose: Federal government operations
- Calculated on: Taxable income (after deductions)
- Reported on: Form 1040
- Minimum: Varies by filing status
Combined Tax Example
Net Profit: $40,000
Self-Employment Tax (15.3%): $5,652
Minus 50% SE Tax Deduction: -$2,826
Minus Standard Deduction (Single): -$14,600
Taxable Income: $22,574
Income Tax (12% bracket): ~$2,509
Total Tax: $5,652 (SE) + $2,509 (Income) = $8,161
Effective tax rate: 20.4% of net profit
Strategies to Reduce Self-Employment Tax
While you can't change the 15.3% rate, you can reduce the amount it's calculated on by maximizing business deductions.
1. Maximize Business Deductions
Every dollar in deductions reduces both SE tax and income tax. Track all eligible expenses:
- Mileage (67/mile in 2026) - typically the largest deduction
- Phone and internet (business portion)
- Equipment and supplies
- Home office (if eligible)
See our complete deductions guide.
2. Contribute to Retirement Accounts
Note: Retirement contributions (SEP-IRA, Solo 401k) reduce income tax but NOT self-employment tax. They're deducted after SE tax is calculated.
However, they still provide significant tax savings on the income tax side.
3. Consider an S-Corporation (Advanced)
High earners ($60k+ net profit) may benefit from electing S-Corp status. You pay yourself a "reasonable salary" (subject to SE tax) and take the rest as distributions (not subject to SE tax).
Caution: S-Corps have additional complexity and costs. Consult a CPA before making this election.
4. Track Miles Religiously
For drivers, mileage is the #1 deduction. At 67/mile, every 1,000 miles = $670 deduction = $94 SE tax savings + income tax savings. Use automatic tracking apps like Stride or MileIQ.
When and How to Pay Self-Employment Tax
Self-employment tax is paid through quarterly estimated tax payments or with your annual tax return. If you expect to owe $1,000 or more, you must make quarterly payments.
Q1 (Jan-Mar)
April 15
2026
Q2 (Apr-May)
June 15
2026
Q3 (Jun-Aug)
Sept 15
2026
Q4 (Sep-Dec)
Jan 15
2027
Related Resources
How to File Taxes as a Gig Worker
Step-by-step guide including Schedule SE (self-employment tax) walkthrough.
View Filing GuideGig Worker Tax Deductions
Maximize deductions to reduce the income SE tax is calculated on.
View Deductions GuideQuarterly Tax Calculator
Calculate quarterly payments including SE tax to avoid penalties.
Calculate Quarterly PaymentsGig Worker Tax Calculator
Estimate total taxes including both SE tax and income tax.
Calculate Total TaxesFrequently Asked Questions
Understanding Self-Employment Tax is Key to Tax Planning
Self-employment tax often surprises new gig workers, but understanding how it works helps you plan accurately. Remember: the 15.3% rate is fixed, but you can reduce the amount it's calculated on by maximizing business deductions.
Use our calculator above to estimate your SE tax, then make quarterly payments to avoid penalties. Track every mile and expense to reduce your net profit and lower both SE tax and income tax. The 50% deduction provides additional savings on the income tax side!