Self-Employment Tax: What It Is and How to Reduce It

What Is Self-Employment Tax?

Self-employment (SE) tax is the Social Security and Medicare tax for people who work for themselves. When you're an employee, your employer pays half (7.65%) and you pay half. When you're self-employed, you pay both halves: 15.3%.

• Social Security: 12.4% (on income up to $176,100 in 2026)
• Medicare: 2.9% (on all income)
• Additional Medicare: 0.9% (on income over $200,000)

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How It's Calculated

SE tax is calculated on 92.35% of your net self-employment income (not your gross income). This adjustment accounts for the employer-equivalent portion.

Example: $100,000 net SE income

• Taxable amount: $100,000 x 92.35% = $92,350
• SS tax: $92,350 x 12.4% = $11,451
• Medicare: $92,350 x 2.9% = $2,678
• Total SE tax: $14,129

That's on top of your regular income tax.

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The Good News: You Get to Deduct Half

You can deduct 50% of your self-employment tax from your adjusted gross income. This reduces your income tax (though not the SE tax itself).

In the example above, you'd deduct $7,065 from your taxable income.

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Strategies to Reduce Self-Employment Tax

1. Maximize Business Deductions

Every dollar of legitimate business expense reduces your SE income, which reduces both income tax and SE tax. A $1,000 deduction saves you approximately $153 in SE tax alone. Check our complete guide to freelance tax deductions to make sure you're not missing any.

2. Consider an S-Corp Election

If your net SE income exceeds $50,000-60,000, an S-Corp election may save you money. As an S-Corp, you:

• Pay yourself a "reasonable salary" (subject to payroll taxes)
• Take remaining profit as distributions (not subject to SE tax)

Example: $120,000 net income

• Sole proprietor SE tax: ~$16,956
• S-Corp with $70,000 salary: ~$10,710 payroll tax
• Savings: ~$6,246

Consult a CPA before making this election — it comes with additional compliance costs.

3. Retirement Contributions

SEP IRA and Solo 401(k) contributions reduce your taxable income. While they don't directly reduce SE tax, they provide significant income tax savings.

4. Hire Family Members

If you have a child under 18, you can hire them for legitimate business work. Their wages are deductible for you and not subject to SE tax for them (up to the standard deduction amount).

5. Health Insurance Deduction

The self-employed health insurance deduction reduces your AGI (though not your SE income directly). Still a significant tax benefit.

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When Is SE Tax Due?

Self-employment tax is paid as part of your quarterly estimated tax payments. Use our free calculator to determine your quarterly payment amount.

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Track It Automatically

TaxPilot calculates your self-employment tax in real time as you earn income throughout the year. No surprises at tax time. Get started free.