Why the self-employed pay it at all
An employee's Social Security and Medicare are split: the employer pays half and withholds the other half from each paycheck. When you work for yourself there is no employer, so the IRS collects both halves from you through self-employment tax, figured on Schedule SE and carried to your Form 1040.
It applies to sole proprietors, to single-member LLC owners who have not elected corporate treatment, and to general partners. The IRS rule is that you owe it once your net earnings from self-employment are $400 or more for the year (the threshold for church employee income is $108.28). It is owed even when no income tax is due, which surprises people in a low-profit first year.
The pieces of the calculation
Three numbers do most of the work. The combined rate is 15.3%, made up of 12.4% for Social Security and 2.9% for Medicare. It is not applied to the whole profit: on the regular method you first multiply net profit by 92.35%, which stands in for the employer half an employee would never be taxed on. And the Social Security part stops at the annual wage base, while Medicare has no cap.
| Item | Tax year 2025 | Tax year 2026 |
|---|---|---|
| Social Security rate | 12.4% | 12.4% |
| Medicare rate | 2.9% (no cap) | 2.9% (no cap) |
| Share of net profit taxed | 92.35% | 92.35% |
| Social Security wage base | $176,100 | $184,500 |
| Minimum net earnings before it applies | $400 | $400 |
| Additional Medicare Tax | 0.9% above $200,000 single or head of household, $250,000 married filing jointly, $125,000 married filing separately | Same thresholds (they are not indexed) |
The IRS's own self-employment tax landing page still quotes the 2024 wage base of $168,600. The current figures are in the Schedule SE instructions and Publication 15, which is where the numbers above come from.
A worked example
Illustrative only, using 2026 figures: a single consultant in Easton has $80,000 of net profit on Schedule C and no other wages.
Net earnings from self-employment are $80,000 × 92.35% = $73,880. Social Security is $73,880 × 12.4% = $9,161. Medicare is $73,880 × 2.9% = $2,143. Self-employment tax is about $11,304. That is well under the $184,500 wage base, so the whole amount is taxed at the full 15.3%.
Half of that, about $5,652, is deductible in figuring adjusted gross income. That deduction lowers income tax only. It does not reduce the self-employment tax itself.
What changes at higher profit
Once net earnings pass the wage base, the 12.4% stops and only the 2.9% Medicare continues. If you also have W-2 wages from a job, those wages use up the wage base first, so less of your self-employment income is subject to Social Security. Schedule SE handles that interaction, which is why a spouse's or your own W-2 matters when anyone estimates this tax.
At the top end, the 0.9% Additional Medicare Tax applies to combined wages and self-employment income above the threshold for your filing status. It is figured separately from Schedule SE.
- Below the wage base: roughly 15.3% of 92.35% of profit
- Above the wage base: 2.9% of 92.35% on the excess, plus Social Security only up to the cap
- Above the Additional Medicare threshold: a further 0.9% on the excess
- Other W-2 wages reduce how much of the wage base is left for self-employment income
Massachusetts: a different tax on the same profit
Self-employment tax is federal. On the Massachusetts side, the Department of Revenue treats a sole proprietor's profit as personal income: you file a Massachusetts Schedule C with Form 1, and the profit is taxed at the 5.00% personal rate (tax year 2025 and 2026), plus the 4% surtax on taxable income above $1,083,150 for 2025 or $1,107,750 for 2026.
The practical point is budgeting. A Massachusetts sole proprietor is paying federal income tax, federal self-employment tax and Massachusetts income tax on the same profit, and none of it is withheld. Massachusetts expects estimated payments if the tax due is more than $400, and generally wants at least 80% of the year's liability paid in before you file.
Why this is the tax an S corporation changes
When a business elects S corporation status, the owner who works in it becomes an employee and is paid a salary. Social Security and Medicare are then due on that salary through payroll, at the same 15.3% combined rate split between the company and the owner. The profit left after salary passes through to the owner without self-employment tax.
That is the whole source of the savings people talk about, and it is smaller than it first looks. The salary has to be reasonable for the work you do, payroll costs money to run, Massachusetts charges every S corporation a $456 minimum excise, and paid family and medical leave contributions apply to W-2 wages. Our page on what an honest S corporation comparison must include walks through every line, and we can run the comparison with your actual numbers.
Where to go from here
Which way to read next depends on where your profit sits.
- Staying a sole proprietor: get estimated payments and records right first, using our pages on quarterly estimates and what records to keep.
- Profit is steady and growing: read when an S corporation makes sense, and what the savings math must include before you trust any figure.
- Already have an LLC: see how a single-member LLC is taxed, since the LLC alone does not change this tax.
Figures on this page were checked against the IRS and Massachusetts sources listed alongside on 28 Sep 2026. They change — confirm the current amount before relying on one.
General information for owner-led businesses, not advice for your specific situation. Tax and accounting rules change, and how they apply depends on facts particular to your business. Talk to us — or to another qualified professional — before acting on anything here.
