Starting your own business is an exciting venture, but it comes with responsibilities, and one of the most overlooked is the self-employment tax. If you run a startup as a sole proprietor, freelancer, or partner in a business, you are likely subject to self-employment tax, and it is separate from the income tax you owe.
This guide breaks down the self-employment tax rate, who has to pay it, how to calculate it, when it is due, and how it differs for LLCs, S corporations, and C corporations.
Self-employment tax is the way entrepreneurs pay into Social Security and Medicare, sometimes called the SECA tax or SE tax. Employees split these contributions with their employer. When you work for yourself, you pay both halves.
The total self-employment tax rate is 15.3%, made up of:
You must pay self-employment tax if your net earnings from self-employment are $400 or more for the year. That includes:
Even if you are running your startup as a side hustle, these rules apply once your net income passes the $400 threshold. If you pay yourself a W-2 salary from a corporation, you pay payroll taxes instead, which is covered in the entity section below.
The calculation is done on Schedule SE (Form 1040). In plain terms:
| Step | Amount |
|---|---|
| Net profit from Schedule C | $50,000 |
| Net earnings subject to the tax ($50,000 × 92.35%) | $46,175 |
| Social Security portion (12.4%) | $5,726 |
| Medicare portion (2.9%) | $1,339 |
| Total self-employment tax | $7,065 |
| Deduction for half of the tax | $3,532 |
This amount is in addition to any income tax you owe. The half-tax deduction lowers your income tax, but it does not reduce the self-employment tax itself.
Because no employer is withholding for you, the IRS expects payments throughout the year. Most founders pay through estimated taxes using Form 1040-ES, which cover both income tax and self-employment tax.
When you file, you reconcile everything on your Form 1040 and Schedule SE. If you owe $1,000 or more after credits and withholding, underpaying during the year can trigger a penalty on Form 2210.
Self-employment tax is based on your net profit, so every legitimate business expense lowers it. A few other deductions lower your income tax even though they do not change the self-employment tax base:
How you structure the business changes how the tax applies, and it is one reason many founders revisit their entity choice as profits grow. Our guide on why startups incorporate in Delaware covers the structural side.
| Structure | Self-employment tax? | How it works |
|---|---|---|
| Sole proprietorship or single-member LLC | Yes | You pay 15.3% on net profit, whether or not you take money out. |
| Multi-member LLC or partnership | Yes, generally | Each member pays on their share of profit and on guaranteed payments. A limited partner's share is generally excluded. |
| S corporation | No on pass-through profit | You must pay yourself a reasonable W-2 salary, which is subject to payroll tax. Remaining profit passes through without self-employment tax. |
| C corporation | No | Founders paid as employees owe payroll tax on wages. Corporate profits are taxed at the entity level. |
The S corporation route can reduce self-employment tax once profit is comfortably above a reasonable salary, but it adds payroll, a separate return, and IRS scrutiny of the salary you set. Run the numbers before you elect.
Self-employment tax is an unavoidable part of running a startup, but with planning it does not have to be overwhelming. Know the 15.3% rate, calculate it on 92.35% of net profit, pay quarterly, and use every deduction available. If your situation involves multiple states, an entity change, or unusual income, a CPA can pressure-test your estimates before the next deadline.
Are you prepared for self-employment taxes this year? Take action now to avoid surprises during tax season. If you are a tax professional researching how a rule applies to a client, Bizora AI gives citation-backed answers in seconds.
The self-employment tax rate is 15.3% of net earnings: 12.4% for Social Security, up to the annual wage base ($184,500 for 2026), and 2.9% for Medicare with no cap. An additional 0.9% Medicare tax applies to earnings above $200,000 for single filers and $250,000 for joint filers.
Anyone with net earnings from self-employment of $400 or more for the year, including sole proprietors, freelancers, independent contractors, partners, and owners of single-member LLCs. The rule applies to side hustles as well as full-time businesses.
Multiply your net profit from Schedule C by 92.35%, then apply 12.4% to earnings up to the Social Security wage base and 2.9% to all earnings, and add them together. On $50,000 of net profit, that comes to about $7,065. You report the result on Schedule SE.
Self-employment tax is generally paid through quarterly estimated payments due April 15, June 15, September 15, and January 15 of the following year, using Form 1040-ES. You then reconcile the full amount on your annual return.
Yes, in most cases. Owners of a single-member LLC and members of a multi-member LLC taxed as a partnership generally pay self-employment tax on their share of net profit. An LLC that elects S corporation status is taxed differently, through payroll on a reasonable salary.
You can deduct half of your self-employment tax as an adjustment to income on Schedule 1. The deduction lowers your income tax, but it does not reduce the self-employment tax itself. Business expenses on Schedule C do reduce it, because they lower net profit.
No, not on pass-through profit. S corporation owners who work in the business must pay themselves a reasonable W-2 salary, which is subject to payroll taxes. The remaining profit passes through without self-employment tax, though it is still subject to income tax.
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