1. Self-Employment Taxes: Schedule SE and the 15.3% Rate
Freelancers, independent 1099 contractors, and sole proprietors must pay a dedicated self-employment tax to cover their Social Security and Medicare contributions. Our self-employment tax calculator estimates this liability based on your net business earnings.
2. The FICA Split for Self-Employed Workers
W-2 employees pay 7.65% for FICA, and their employers match that payment. Self-employed individuals must pay both the employee and employer portions, resulting in a total self-employment tax rate of 15.3% on 92.35% of their net business profits.
3. Social Security Cap and Medicare Surtax
The 12.4% Social Security portion of the tax only applies to the first $168,600 of combined wage and business earnings. The 2.9% Medicare portion has no income limit, and high-income self-employed workers face an additional 0.9% Medicare surtax on earnings over $200,000 (Single) or $250,000 (Married).
4. Above-the-Line Tax Deductions
To offset the employer portion of the tax, the IRS allows you to deduct 50% of your total self-employment tax liability as an adjustment to income on Form 1040, which reduces your taxable income subject to regular income taxes.