Self-employment tax catches most first-year sole props off guard. It's not the income tax — it's the 15.3% on top of income tax, the part W-2 employees never see because their employer pays half.
Here's exactly how the IRS computes it. We pulled the formulas from Publication 334 and Schedule SE; you can replicate them in a spreadsheet.
The 15.3% rate, broken down
Self-employment tax is two pieces:
- 12.4% Social Security — applied to net SE earnings up to the annual wage base ($168,600 in 2024; $176,100 in 2025; $182,400 projected for 2026 — confirm the year before filing)
- 2.9% Medicare — applied to all net SE earnings, no cap
- +0.9% additional Medicare — applied to net SE earnings above $200K single / $250K MFJ
W-2 employees pay half (7.65%). Their employer pays the other half. As a sole prop, you pay both.
The 92.35% adjustment (the part everyone forgets)
You don't pay SE tax on 100% of your net Schedule C profit. You pay it on 92.35% of it.
Why? Because W-2 employees don't pay FICA on the employer's share of FICA — and Congress wanted symmetry. Multiplying by 92.35% (which is 1 − 7.65%) gets the tax base in line with what an equivalent W-2 worker would face.
So the formula:
Net SE earnings = Schedule C line 31 × 0.9235
SE tax = (Net SE earnings × 0.124, capped at the SS wage base)
+ (Net SE earnings × 0.029)
+ (Net SE earnings above $200K/$250K × 0.009)
If your Schedule C profit is below $400, you owe no SE tax. (You may still owe income tax.)
A worked example
Sole prop, single, $80,000 of net Schedule C profit, 2025:
Step 1: 80,000 × 0.9235 = 73,880 (net SE earnings)
Step 2: 73,880 × 0.124 = 9,161 (SS portion — under the cap)
Step 3: 73,880 × 0.029 = 2,143 (Medicare portion)
Step 4: Additional Medicare = 0 (under $200K)
Step 5: Total SE tax = 11,304
SE tax: $11,304. Then income tax sits on top.
The half-deduction (the part most preparers miss for first-timers)
Half of your SE tax — $5,652 in the example above — is deductible as an above-the-line adjustment on Schedule 1, line 15. This reduces your AGI, which then reduces your income tax.
It's not on Schedule C. It's not on Schedule SE. It's a separate line on Schedule 1, and you only get it if you remember to take it.
The adjustment matters: at a 22% marginal income tax rate, the $5,652 deduction saves another $1,243 in income tax.
Where it appears on your return
| Form | Line | What goes there | |---|---|---| | Schedule SE Part I | line 6 | Net SE earnings (after 92.35%) | | Schedule SE Part I | line 12 | Total SE tax | | Form 1040 | Schedule 2, line 4 | SE tax (added to total tax) | | Schedule 1 | line 15 | Half of SE tax (deduction) |
If your tax software is wired correctly, all four lines populate automatically once you enter the Schedule C number. If you're hand-filing, watch for these four — they're the most-skipped of any self-employed return.
What if I have multiple businesses?
Each Schedule C is computed separately. SE tax is computed on the combined net SE earnings across all of them. If one business shows a loss, it offsets the others.
What if I have W-2 wages too?
The Social Security cap applies to the combined wages and SE earnings. Your W-2 employer withheld FICA on your wages already; you don't get to apply the SS portion of SE tax to wages they already paid on.
The Schedule SE worksheet handles this — line 8a–8d. Skip it and you'll over-pay.
What if I'm a church employee or have farm income?
Different rules. Schedule SE Part II covers ministers, religious-order members, statutory employees, and farm income. We don't cover those edge cases here; see Pub 517 (clergy) or Pub 225 (farmers).
The S-corp question
If your Schedule C profit is consistently above ~$60,000 and stable, an S-corp election can reduce SE tax. The S-corp pays you a "reasonable" W-2 wage (FICA applies to that), and the rest flows through as distributions (no FICA). See S-corp election worth it? for the break-even math.
How ExpenseGhost helps
ExpenseGhost computes a running estimate of SE tax + income tax against your live transaction data, so the bill at year-end is never a surprise. The estimate updates as you classify expenses. See the tax dashboard. For the quarterly cadence the estimate feeds into, see quarterly estimated taxes for freelancers and Schedule C deductions checklist 2026.
FAQ
Do I owe SE tax if I had a loss?
No. SE tax only applies if net SE earnings are $400 or more. A loss carries no SE tax (and you may be able to deduct it against other income, depending on basis and at-risk rules).
Does SE tax fund my Social Security?
Yes — both halves of the 12.4% credit toward your future Social Security benefit. Same with the 2.9% Medicare portion.
Can I take the QBI deduction on my SE income?
QBI (the §199A 20% deduction) is computed separately and reduces your income tax, not SE tax. SE tax is computed on Schedule C profit before QBI.
What if my income is over the additional Medicare threshold?
Net SE earnings above $200K (single) / $250K (MFJ) face an extra 0.9%. It's reported on Form 8959. The threshold is not indexed to inflation, so more sole props hit it every year.
ExpenseGhost provides tax estimates and tax-ready exports. We are not a tax preparer and do not file returns. Estimates are informational — verify every number with a licensed tax professional before filing.