The idea in one paragraph
Employees split Social Security + Medicare tax with their employer. Freelancers pay both shares. That combined tax is called self-employment tax, reported on Schedule SE.
The maths, simplified
- Start with Schedule C net profit.
- Multiply by 92.35% — this is the SE-tax base. The 7.65% reduction roughly mirrors the employer’s share that an employee never sees as wages.
- Apply 15.3% (12.4% Social Security + 2.9% Medicare) to that base, subject to the annual Social Security wage cap.
- Above the cap, only the 2.9% Medicare portion (plus an additional Medicare tax at higher incomes, if applicable) continues.
Example (teaching numbers only): $17,000 net profit → $15,700 base → about $2,402 SE tax before caps or other adjustments. Income tax is separate.
Myths to drop
- “I owe 15.3% of my 1099 total.” No — of 92.35% of net profit, not gross pay.
- “If I made under $400, I owe nothing.” Net self-employment earnings under $400 generally do not trigger SE tax, but income tax rules are separate — check your total filing requirement.
- “Quarterly payments are the same as SE tax.” No — quarterly payments are how you pay income tax + SE tax during the year. The return reconciles what you already paid.
Can you reduce SE tax?
Legitimately, only by correctly reporting expenses (lower profit = lower SE tax) and by claiming the deduction for one-half of SE tax on your 1040. Schemes that promise to “eliminate” SE tax with a shell entity or fake expenses are red flags.
Next: The Complete First 1099-NEC Guide · Quarterly Estimated Taxes
Educational only. General information for beginners, not tax advice. Verify current rules on IRS.gov or with a qualified professional.