Self Employment Tax Rate Explained for Side Earners

If you earn money on the side, from freelance work, deliveries, tutoring, or selling goods online, you may owe a tax that regular employees never see on their own. It is called self employment tax, and it catches many new side earners by surprise.

Here is the direct answer. The self employment tax rate is 15.3 percent: 12.4 percent for Social Security and 2.9 percent for Medicare. It applies to 92.35 percent of your net earnings from self employment. For 2026, the Social Security part only applies to the first $184,500 of your combined wages, tips, and net earnings. The Medicare part has no cap. You owe this tax when your net earnings reach $400 or more in a year.

What Is Self Employment Tax?

Self employment tax is the Social Security and Medicare tax for people who work for themselves. When you have a regular job, your employer takes Social Security and Medicare taxes out of your pay and pays an equal share on top. When you work for yourself, there is no employer to pay that second share, so you pay both shares yourself.

The Internal Revenue Service, known as the IRS, describes it as a tax consisting of Social Security and Medicare taxes primarily for individuals who work for themselves.

Who Has to Pay Self Employment Tax?

You must pay self employment tax and file Schedule SE if your net earnings from self employment were $400 or more in the tax year. That threshold is low on purpose. If you earned $500 from freelance design work after expenses, you are over the threshold, and you owe the tax.

The rule covers sole proprietors, independent contractors, freelancers, gig workers, and most people who run a small business on their own. If you drive for a ride service, deliver food, sell crafts online, tutor students, or do freelance writing, your income usually counts as self employment income. You generally use Schedule C to work out your net earnings, which is your business income minus your business expenses.

The 15.3 Percent Rate, Broken Down

The self employment tax rate is 15.3 percent, and it has two parts.

Part	Rate	What it funds
Social Security	12.4 percent	Retirement, disability, and survivor benefits
Medicare	2.9 percent	Hospital insurance
Total	15.3 percent	Both programs together

For a regular employee, these costs are split evenly. The employee pays 7.65 percent through payroll withholding, and the employer pays the other 7.65 percent. A self employed person pays the full 15.3 percent, because you are both the worker and the employer. What changes from year to year is the wage base, the income limit for the Social Security part. Check the current figures at the IRS self employment tax page: https://www.irs.gov/businesses/small-businesses-self-employed/self-employment-tax-social-security-and-medicare-taxes

What About the 2020 Rate?

Many people search for the self employment tax rate for 2020, because that was the year side work and gig work grew fast. The rate in 2020 was also 15.3 percent. What was different in 2020 was the Social Security wage base. In 2020, the wage base was $137,700, so the Social Security part only applied to the first $137,700 of earnings that year. By 2026, the wage base has risen to $184,500. The wage base rises most years because it is adjusted for growth in average wages.

The 2026 Social Security Wage Base

For 2026, the first $184,500 of your combined wages, tips, and net earnings is subject to the Social Security part of self employment tax. The Medicare part applies to all of your net earnings, with no cap at all.

The word combined matters. Your day job wages and your side business earnings share one wage base. Suppose your employer already withheld Social Security tax on $184,500 of wages. Then you do not pay the 12.4 percent Social Security part on any of your self employment earnings, because the cap is already used up. You still pay the 2.9 percent Medicare part on your side earnings. The Social Security Administration sets the wage base each year, and the IRS publishes it. For 2026, the figure is $184,500. In 2025 it was $176,100.

The 92.35 Percent Rule

You do not pay self employment tax on 100 percent of your net profit. You pay it on 92.35 percent of your net profit. The reason is fair. An employee never pays Social Security and Medicare tax on the employer share, because the employer pays it from separate money. To give self employed people the same treatment, the IRS lets you reduce your net earnings by 7.65 percent before applying the tax.

On Schedule SE, this is a clear step. You enter your net profit, multiply it by 92.35 percent, and then apply the tax rate to the result.

How to Calculate Your Self Employment Tax in 5 Steps

Step 1: Work out your net profit

Add up all the income from your side work, then subtract all your ordinary business expenses. This is your net profit, and you report it on Schedule C. Keep records of every payment you receive and every expense you pay. If you want a simple system for this, read our guide on how to track side income for tax in simple terms.

Step 2: Multiply by 92.35 percent

Take your net profit and multiply it by 0.9235. This gives you your net earnings subject to self employment tax. If your net earnings are under $400, you stop here. You do not owe self employment tax.

Step 3: Apply the Social Security part

Multiply the result by 12.4 percent, but only on the part that fits under the wage base. Subtract any wages from your day job first, because those wages already used part of the $184,500 cap.

Step 4: Apply the Medicare part

Multiply the full result from step 2 by 2.9 percent. There is no cap on Medicare, so this applies to all of your net earnings.

Step 5: Add the two parts together

Add the Social Security amount and the Medicare amount. The total is your self employment tax. You can also deduct half of this total from your income when you work out your income tax.

Worked Example: A Side Earner with $18,000 of Net Profit

Meet Sara. Sara has a full time job that pays her $52,000 a year in wages. On weekends, she does freelance graphic design. In 2026, her design work brings in $24,000, and her business expenses, including software, a laptop, and internet costs, total $6,000.

First, her net profit is $24,000 minus $6,000, which equals $18,000. This is the figure from her Schedule C.

Second, multiply $18,000 by 92.35 percent. $18,000 times 0.9235 equals $16,623. This is the amount subject to self employment tax.

Third, work out the Social Security part. Sara’s day job wages of $52,000 already used $52,000 of the $184,500 wage base, leaving $132,500 of room. Her taxable amount of $16,623 is well under that room, so the full amount is taxed at 12.4 percent. $16,623 times 0.124 equals $2,061.25.

Fourth, work out the Medicare part. There is no cap, so the full $16,623 is taxed at 2.9 percent. $16,623 times 0.029 equals $482.07.

Fifth, add the two parts. $2,061.25 plus $482.07 equals $2,543.32. That is Sara’s self employment tax for the year.

Sara can also deduct half of that amount, $1,271.66, from her income when she works out her income tax. That deduction does not reduce the self employment tax itself, but it does reduce the income tax she owes. Her effective self employment tax rate on her $18,000 profit is about 14.1 percent, not the full 15.3 percent, because of the 92.35 percent rule.

Quarterly Estimated Tax Payments

Self employment tax is not withheld from your pay, because there is no employer to withhold it. You need to pay it yourself during the year, in quarterly estimated tax payments. If you wait until you file your return in April, you may owe a large lump sum, plus an underpayment penalty.

The IRS expects estimated tax payments four times a year. For the 2026 tax year, the due dates are April 15, June 15, September 15, and January 15 of the next year. You can pay online through the IRS website, or use Form 1040-ES to work out each payment. A simple habit is to set aside 25 to 30 percent of every side income payment as soon as it arrives, in a separate savings account. That money covers both your self employment tax and your income tax on the side earnings.

The Deductible Half: A Tax Break Worth Knowing

You can deduct the employer equivalent portion of your self employment tax when you work out your adjusted gross income. In plain words, you can deduct half of your self employment tax from your income. In Sara’s example, that was $1,271.66. This deduction only affects your income tax. It does not reduce your net earnings from self employment, and it does not reduce your self employment tax. You claim it on Schedule 1 of Form 1040, not on Schedule SE. Wage earners cannot deduct their Social Security and Medicare taxes, so this is a small advantage for self employed people.

Self Employment Tax vs Income Tax

Many beginners mix up self employment tax and income tax. They are two different taxes, and you may owe both on the same income. Self employment tax is a flat rate of 15.3 percent on 92.35 percent of your net earnings, up to the wage base for the Social Security part. It funds Social Security and Medicare. Income tax is based on your total taxable income, after deductions, and it uses graduated brackets. The rate depends on how much you earn in total and on your filing status.

Your day job wages are subject to income tax and to Social Security and Medicare withholding. Your side income is subject to income tax and to self employment tax. That is why side income can feel expensive.

Common Mistakes Side Earners Make

The first mistake is forgetting the tax exists. Many people spend all of their side income and then face a large bill in April. Setting money aside from every payment prevents this shock.

The second mistake is paying tax on gross income instead of net profit. You only owe self employment tax on your profit after expenses, not on everything you were paid. If you forget your expenses, you will overpay. To find side work that pays well enough to make the extra tax worth it, see our list of the highest paying side hustles.

The third mistake is skipping the 92.35 percent step. If you apply 15.3 percent to your full net profit, you will overpay. Always multiply by 92.35 percent first. The fourth mistake is missing quarterly payments. The IRS charges interest and penalties for underpayment, even if you pay the full amount when you file.

Your Simple Action Plan

Follow this plan this week. First, add up your side income and expenses so far this year, and work out your net profit. Second, multiply that profit by 92.35 percent, then by 15.3 percent, to estimate your self employment tax. Third, open a separate savings account and move 25 to 30 percent of each new side payment into it. Fourth, set calendar reminders for the four quarterly due dates. Fifth, keep every receipt and record in one folder, so tax time is simple. If your side work grows, you may also want to learn how the payroll taxes on a regular salary compare, which our guide to your total FICA contribution explains in plain terms.

Frequently Asked Questions

Do I owe self employment tax on my first $400 of side income?

You owe the tax when your net earnings from self employment reach $400 or more in a year. Below $400, you generally do not owe it. Note that this is net earnings after expenses, not gross income.

Is the self employment tax rate the same as the FICA rate?

The total is the same, 15.3 percent, but who pays it is different. For an employee, the 15.3 percent is split between the worker and the employer. For a self employed person, one person pays the whole 15.3 percent. The two parts, 12.4 percent for Social Security and 2.9 percent for Medicare, are identical.

Can I avoid self employment tax by calling my income something else?

No. The IRS looks at the nature of the income, not the label you give it. If you earned money by doing work for yourself, it is self employment income, even if a client calls it a gift, a bonus, or a consulting fee. Even teenagers who earn money on their own face the same rules, as our guide to how to make passive income as a teen explains.

Does self employment tax apply to passive income like rent or dividends?

Generally, no. Rental income, interest, and dividends are not subject to self employment tax, because they are not earnings from work you performed. There are exceptions for some kinds of active business income, so check the IRS rules for your exact situation.

What happens if I cannot pay my self employment tax on time?

File your return on time even if you cannot pay in full. The penalty for filing late is much larger than the penalty for paying late. The IRS offers payment plans, and interest will apply, but filing on time and setting up a plan is far better than ignoring the bill.

Conclusion

Self employment tax is simple once you know the pieces. The rate is 15.3 percent, split into 12.4 percent for Social Security and 2.9 percent for Medicare. It applies to 92.35 percent of your net earnings, and the Social Security part stops at the 2026 wage base of $184,500.

This article is for general information and education only. It is not legal or financial advice.