Self-Employment Tax, Explained: Why 15.3% Is Not What You Think
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. ...