# What is the self-employment tax? Olivia Watson · August 4, 2026 > The self-employment tax rate of 15.3% is the same as the combined Social Security and Medicare tax rate for employees, but self-employed individuals... The self-employment tax rate of 15.3% is the same as the combined Social Security and Medicare tax rate for employees, but self-employed individuals pay the entire amount themselves. Self-employed individuals can deduct the employer-equivalent portion of their self-employment tax (half of the total) as an adjustment to their income, effectively reducing their taxable income. **Also worth reading:** [What methods does NetCredit use to verify income and employment status during the loan application process?](https://cashcache.co/knowledge/what_methods_does_netcredit_use_to_verify_income_and_employment_status_during_the_loan_application_process.php) · [How do AI tax loss harvesting strategies work in 2026 and what are the best tools available?](https://cashcache.co/knowledge/how_do_ai_tax_loss_harvesting_strategies_work_in_2026_and_what_are_the_best_tools_available.php) · [What are the state EITC income limits and eligibility charts for 2026?](https://cashcache.co/knowledge/what_are_the_state_eitc_income_limits_and_eligibility_charts_for_2026.php) The Social Security component of the self-employment tax (12.4%) only applies to the first $168,600 (in 2024) of net self-employment income, after which no further Social Security tax is due. Self-employed individuals who have a net profit of less than $400 from their self-employment activities are not required to pay the self-employment tax. Certain types of income, such as rental income, dividends, and interest, are not subject to the self-employment tax, as they are not considered net earnings from self-employment. Self-employed individuals can make quarterly estimated tax payments throughout the year to avoid underpayment penalties, rather than paying the full amount when filing their annual tax return. The self-employment tax is in addition to the regular federal income tax that self-employed individuals must pay on their net self-employment income. Self-employed individuals who have both self-employment income and wages from an employer may be able to claim a credit for the Social Security tax paid by their employer. The self-employment tax can be reduced for self-employed individuals who participate in certain retirement savings plans, such as a Solo 401(k) or a Simplified Employee Pension (SEP) IRA. The self-employment tax is calculated on Schedule SE (Form 1040), which is used to determine the total amount owed for Social Security and Medicare taxes. Self-employed individuals who have a loss from their self-employment activities can use that loss to offset other taxable income, potentially reducing their overall tax liability. The self-employment tax is not just for freelancers and independent contractors; it also applies to small business owners, such as sole proprietors and partners in a partnership. The self-employment tax is a significant consideration for individuals who are transitioning from being an employee to being self-employed, as the tax burden can be significantly higher. Self-employed individuals who have a low net income from their self-employment activities may be eligible for the Earned Income Tax Credit (EITC), which can help offset the self-employment tax and other taxes. The self-employment tax is not just a federal tax; some states also impose their own self-employment taxes, which can add to the overall tax burden for self-employed individuals. The IRS provides various resources and tools, such as the Self-Employment Tax Estimator, to help self-employed individuals calculate and plan for their self-employment tax obligations. The self-employment tax is a key consideration for individuals who are considering starting a business or transitioning to self-employment, as it can have a significant impact on their overall tax liability. The self-employment tax is not just a tax on income; it also provides self-employed individuals with coverage for Social Security and Medicare benefits, which can be important for retirement and healthcare planning. The self-employment tax rules and regulations are subject to regular updates and changes, so it's important for self-employed individuals to stay informed and seek professional tax advice when necessary. The self-employment tax can be a complex topic, with various deductions, credits, and planning strategies that self-employed individuals can use to manage their tax obligations and optimize their overall financial situation. Canonical: https://cashcache.co/knowledge/what_is_the_self-employment_tax.php Markdown: https://cashcache.co/knowledge/what_is_the_self-employment_tax.php/index.md