Self-Employment Tax Explained: 15.3% FICA for Freelancers
How self-employment tax is calculated, why the 92.35% multiplier exists, the deduction for half of it, and legitimate ways to reduce the bill.
Self-employment tax is the 15.3% Social Security and Medicare tax freelancers pay on 92.35% of their net business profit, because they cover both the employee and employer halves of FICA.
What you'll walk away with
Skim these first — then dig into the details below.
- 1Self-employment tax equals 15.3% of 92.35% of net self-employment income.
- 2It funds Social Security at 12.4% and Medicare at 2.9%, with an extra 0.9% Medicare surtax on high earners.
- 3You deduct half of the tax on your 1040, which lowers income tax but not the SE tax itself.
- 4Retirement contributions and an S-corp election are the two main ways to shrink the bill.
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Employees see 7.65% taken out for Social Security and Medicare and rarely notice that their employer quietly pays a matching 7.65%. When you work for yourself, you are both parties.
That is why a freelancer earning the same gross income as an employee owes noticeably more tax. It is not a penalty — it is the employer half becoming visible.
The calculation step by step
The arithmetic is simple once you know the order. Everything starts with net profit, not gross revenue.
- 1
Calculate net profit: business revenue minus all ordinary and necessary business expenses.
- 2
Multiply net profit by 92.35% to get your SE tax base.
- 3
Multiply the base by 15.3% to get self-employment tax.
- 4
Cap the Social Security portion — only wages and profit up to the annual wage base are subject to the 12.4% piece.
- 5
Deduct one half of the resulting SE tax as an above-the-line adjustment on Form 1040.
What counts and what does not
Not every dollar you receive is subject to self-employment tax. Knowing the boundaries prevents both overpayment and unpleasant surprises.
- Subject to SE tax: freelance and consulting income, 1099-NEC work, single-member LLC profit, general partnership income.
- Not subject: W-2 wages (regular FICA already applies), most rental income, interest, dividends, and capital gains.
- The 0.9% additional Medicare tax applies above $200,000 single or $250,000 married filing jointly.
- You owe SE tax once net earnings reach $400, even if you owe no income tax at all.
Legitimate ways to reduce the bill
There are two real levers: shrink net profit through deductible retirement contributions, or change the character of the income through an S-corp election.
- Solo 401(k): contribute as both employee and employer, often the largest deferral available to a one-person business.
- SEP IRA: simpler paperwork, contributions based on a percentage of net earnings.
- Home office, health insurance premiums, mileage, and equipment are commonly missed deductions.
- S-corp election: pay yourself a reasonable W-2 salary subject to FICA and take remaining profit as distributions that avoid SE tax.
When an S-corp actually makes sense
The S-corp strategy gets oversold online. It only wins when the tax saved exceeds the cost and complexity of running payroll and filing a separate business return.
- Profit generally needs to exceed roughly $60,000–$80,000 before the savings outweigh the costs.
- Expect $1,500–$3,000 a year in payroll service and additional tax preparation fees.
- The salary must be defensibly reasonable for your role — the IRS audits unreasonably low salaries.
- A lower W-2 salary also reduces future Social Security benefits and retirement contribution room.
Disclaimer: This page includes AI-assisted educational content reviewed for general accuracy. It is not personalized financial, tax, or legal advice. Verify numbers with a qualified professional and our editorial standards.
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Related guides that deepen the same decision.
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ReadRetirementSEP IRA for Self-Employed: Rules, Limits & Setup
A SEP IRA lets self-employed people contribute up to 25% of net self-employment income, capped at $70,000 in 2025, with very little paperwork — but every eligible employee must receive the same percentage.
ReadRetirementSolo 401(k) Guide for Self-Employed & Freelancers
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