Taxes
Self-Employment Tax Explained: The 15.3% Broken Down
It's the tax line that surprises every new freelancer the most. Here's exactly what it is, why it exists, and how the percentage is actually calculated.
Every W-2 employee pays into Social Security and Medicare through FICA tax, split 50/50 with their employer — 7.65% comes out of the paycheck, and the employer quietly pays a matching 7.65%. Self-employment tax exists because a freelancer has no employer to cover that other half — so the IRS collects both halves, 15.3% total, directly from you.
The 15.3% breakdown
- 12.4% — Social Security portion, applied up to an annual wage base limit that adjusts each year.
- 2.9% — Medicare portion, with no income cap at all.
- An additional 0.9% Medicare surtax applies to self-employment income above certain thresholds ($200,000 single / $250,000 married filing jointly), on top of the standard 2.9%.
Why it's calculated on 92.35% of earnings, not 100%
Self-employment tax isn't applied to your full net profit — it's applied to 92.35% of net earnings. This adjustment exists because an employee's employer-paid FICA match isn't counted as the employee's taxable wage; the 92.35% factor roughly replicates that effect for the self-employed, so freelancers aren't taxed on a phantom "employer share" that doesn't really exist as separate income.
The half-SE-tax deduction
To further mirror how an employee's income tax isn't affected by their employer's FICA contribution, freelancers get to deduct half of their self-employment tax from their income before calculating federal income tax. This deduction is automatic on Schedule SE and doesn't require itemizing.
This is separate from income tax
Self-employment tax funds Social Security and Medicare specifically — it doesn't replace federal or state income tax, which is calculated separately on your total taxable income after deductions. Both apply together, which is why the percentage freelancers set aside for taxes needs to cover both, not just one.
Why understanding this matters
Self-employment tax is close to a flat rate regardless of income level (aside from the Social Security wage base cap and the 0.9% surtax at high income), which makes it predictable to plan for. It's also why business structure decisions — like an S-Corp election — matter so much at higher income levels: only salary, not distributions, is subject to this tax under an S-Corp.
Frequently asked questions
Free Agent Finance Editorial Team
Cross-checked against IRS Schedule SE instructions. Have a correction? Let us know.
