Self-employment tax

Employees split Social Security and Medicare tax with their employer. If you’re a sole proprietor, a partner, or an LLC member taxed as one, you pay both halves yourself: 15.3% in total, made up of 12.4% for Social Security and 2.9% for Medicare.

The Social Security part applies to net earnings up to $184,500 for 2026; the Medicare part has no cap, and higher earners owe an additional Medicare tax on top. The tax is figured on Schedule SE and is based on your profit after business expenses, not on your revenue.

No employer withholds it for you, so most self-employed contractors make quarterly estimated tax payments that cover both income tax and self-employment tax. Missing them can mean penalties and a large bill at tax time.

Two practical points: you can deduct half of your self-employment tax when figuring adjusted gross income, and every legitimate business expense you record lowers the tax. Some contractors set up an S corporation to change how the tax applies, but that brings payroll and other requirements. Talk to a tax professional about what fits your situation.