Concise Takeaway
Self‑employment tax is the Social Security and Medicare tax paid by individuals who work for themselves. It is calculated on net earnings from self‑employment using Schedule SE.
What Counts as Self‑Employment Income
Net income from self‑employment is:
- Gross income from a trade or business
- Minus ordinary and necessary business deductions
A partner’s distributive share of partnership ordinary income or loss is also self‑employment income.
Income not treated as self‑employment income
- Wages earned as an employee
- Dividends (unless the taxpayer is a securities dealer)
- Payments to a retired partner that continue after death
- Income earned as a state employee in certain roles (such as a notary)
A taxpayer must file a return if net earnings from self‑employment are $400 or more.
What SE Tax Is
Self‑employment tax is imposed under the Self‑Employed Contributions Act (SECA). It is the equivalent of:
- 12.4% Social Security tax, up to the annual wage base
- 2.9% Medicare tax, with no income limit
For 2025:
- Social Security portion applies to the first $176,100 of net earnings
- Medicare portion applies to all net earnings
Self‑employment income may also be subject to Additional Medicare Tax.
Who Must Pay SE Tax
A taxpayer must file Schedule SE and pay SE tax if:
- Net earnings from self‑employment are $400 or more, or
- Church employee income is $108.28 or more
How Net Earnings Are Calculated
Before applying SE tax rates, the taxpayer reduces net income from self‑employment by the employer‑equivalent portion of FICA:
- Employers normally pay 7.65%
- Self‑employed taxpayers subtract this amount from their net income
- This produces net earnings from self‑employment
This adjustment mirrors the employer share of Social Security and Medicare taxes.
Example Calculation
A taxpayer has $100,000 of net income from self‑employment.
- Employer‑equivalent portion: 7.65% × $100,000 = $7,650
- Net earnings from self‑employment: $100,000 − $7,650 = $92,350
- SE tax: $92,350 × 15.3% = $14,130
This amount is reported on Schedule SE. Half of the SE tax is deductible as an adjustment to income.
SE Tax Flow Summary
- Compute net income from self‑employment
- Subtract 7.65% employer‑equivalent portion
- Apply 12.4% Social Security rate (up to wage base)
- Apply 2.9% Medicare rate
- Add Additional Medicare Tax if applicable
- Deduct half of SE tax as an adjustment to income