# Self-Employment Tax

> Self-employment tax is the US federal tax that independent contractors and other self-employed people pay on their net earnings to fund Social Security and Medicare, covering both the employee and employer shares that an employer would otherwise withhold and match.

Self-employment tax is how the United States collects Social Security and Medicare contributions from people who work for themselves. When someone is employed, these contributions are split: the worker pays half through payroll withholding and the employer matches the other half. A self-employed person has no employer to match, so they pay both halves themselves.

The combined rate is 15.3 per cent, made up of 12.4 per cent for Social Security and 2.9 per cent for Medicare. The Social Security portion applies only up to an annual earnings cap, which is 184,500 US dollars for 2026, whilst the Medicare portion applies to all net self-employment earnings with no ceiling. Higher earners pay an extra 0.9 per cent Medicare surcharge above set thresholds.

Self-employment tax is separate from income tax and is calculated on net earnings, broadly profit after allowable expenses. Contractors can deduct half of the tax when working out their income tax, which softens the effect of paying both shares.

## How is self-employment tax calculated?

It is charged on net earnings from self-employment, broadly your profit after expenses. In practice, net profit is first multiplied by 92.35 per cent, then the 15.3 per cent rate is applied. The 12.4 per cent Social Security element stops at the annual wage cap, while the 2.9 per cent Medicare element continues on all earnings.

Self-employed people typically report and pay this on Schedule SE, filed with their annual federal return, and often through quarterly estimated payments.

## How does it differ from an employee's payroll tax?

The economic burden is similar, but the split differs. An employee and their employer each pay 7.65 per cent in Social Security and Medicare taxes, for 15.3 per cent in total. A self-employed person pays the whole 15.3 per cent, though they can deduct half of it against income tax to even things out.

## Why does this matter when hiring contractors abroad?

Self-employment tax is a US concept, but every country has its own version of who bears social contributions. When you engage a contractor, they carry these costs; when you employ someone, the employer does. Misjudging the status can shift costs unexpectedly, which is why classification and the true cost of each option matter.

## Key facts

- **Self-employment tax rate:** 15.3 per cent on net self-employment earnings: 12.4 per cent for Social Security and 2.9 per cent for Medicare. (Source: Internal Revenue Service, verified 2026-07-28)
  Self-employed people report and pay this on Schedule SE and can deduct half of it when calculating income tax.
- **2026 Social Security wage base:** 184,500 US dollars is the maximum earnings subject to the 12.4 per cent Social Security portion for 2026. (Source: Social Security Administration, verified 2026-07-28)
  Medicare's 2.9 per cent has no cap, and a 0.9 per cent additional Medicare tax applies above 200,000 US dollars for single filers or 250,000 US dollars for married couples filing jointly.

## Self-employed vs employed: Social Security and Medicare

|  | Self-employed | Employed |
| --- | --- | --- |
| Who pays | The worker pays both shares | Split between employee and employer |
| Combined rate | 15.3% (12.4% Social Security + 2.9% Medicare) | 15.3% total, 7.65% each side |
| Collected via | Schedule SE and estimated payments | Payroll withholding by the employer |
| Deduction | Half of the tax is deductible against income tax | Employer share is a business expense |

## Frequently asked questions

### Who has to pay self-employment tax?

Anyone with net earnings from self-employment of 400 US dollars or more in a year generally owes it. That includes independent contractors, sole proprietors, freelancers, and most partners in a partnership. It applies on top of any federal and state income tax due on the same earnings.

### Is self-employment tax the same as income tax?

No. Self-employment tax funds Social Security and Medicare, whilst income tax is separate and calculated differently. A contractor can owe both on the same earnings. Because no employer withholds either, self-employed people usually make quarterly estimated payments to cover the combined bill.

### Can I deduct any of it?

Yes. You can deduct half of your self-employment tax when calculating your adjusted gross income for income-tax purposes. This mirrors the fact that an employer's share of payroll tax is not counted as the employee's income, so it puts the self-employed on a more even footing.

### How does this compare with employing someone through an EOR?

When you employ a worker, the employer carries the matching social contributions rather than the worker. Through an employer of record, those employer-side costs sit with the EOR's local entity and are built into the cost of employment, so you can see the full picture before you hire.

## Sources

- [Topic no. 554, Self-employment tax](https://www.irs.gov/taxtopics/tc554), Internal Revenue Service
- [Contribution and Benefit Base](https://www.ssa.gov/oact/cola/cbb.html), Social Security Administration
- [Topic no. 560, Additional Medicare tax](https://www.irs.gov/taxtopics/tc560), Internal Revenue Service

_Last updated 2026-07-28. Reviewed by Teamed's in-house employment-law team. Source: https://www.teamed.global/glossary/self-employment-tax_