Self-Employment Tax

What is Self-Employment Tax?

Self-employment tax is the self-employed person's equivalent of FICA (Social Security + Medicare) taxes that employers withhold from W-2 wages. When you work for yourself, you pay both the employer and employee shares.

Total rate: 15.3% = 12.4% Social Security + 2.9% Medicare

The 92.35% Factor

Employees only pay FICA on their wages. Self-employed individuals get a reduction to account for the fact that employers deduct their share as a business expense. The IRS applies a 92.35% factor to net self-employment income before calculating the tax.

Example: $100,000 net profit from Schedule C

• SE tax base: $100,000 x 0.9235 = $92,350
• Social Security tax: $92,350 x 12.4% = $11,451 (up to wage base)
• Medicare tax: $92,350 x 2.9% = $2,678
• Total SE tax: $14,129

The Social Security Wage Base

For 2025, Social Security tax applies only to the first $176,100 of combined wages and SE income. If the taxpayer also has W-2 wages, those count first against the wage base.

Medicare has no wage base — it applies to all SE income regardless of W-2 wages.

The Half Deduction

Half of SE tax is deductible as an above-the-line adjustment on Schedule 1 Line 15. This reduces AGI, which lowers income tax. It does not reduce SE tax itself.

In the example above: $14,129 / 2 = $7,065 deduction on Schedule 1

Additional Medicare Tax (Form 8959)

High earners pay an extra 0.9% Medicare surtax on combined W-2 Medicare wages + SE income exceeding:

• $200,000 (Single/HOH)
• $250,000 (MFJ)
• $125,000 (MFS)

This is calculated on Form 8959 and reported on Schedule 2 Line 11.

In PaisaTax

Schedule SE computes automatically when Schedule C or Schedule F has a net profit. The engine handles:

• The 92.35% reduction
• W-2 wage base offset
• The half deduction flowing to Schedule 1 Line 15
• Form 8959 triggering when thresholds are exceeded