Self-employment (SE) tax is the Social Security and Medicare tax paid by self-employed individuals who do not have an employer withholding these taxes. It is equivalent to the combined employee and employer portions of FICA.
SE tax rates (2025): - Social Security: 12.4% on net SE income up to the wage base ($176,100 in 2025). - Medicare: 2.9% on all net SE income (no cap). - Total: 15.3% up to the SS wage base; 2.9% above. - Additional Medicare tax: 0.9% on net SE income above $200,000 (single) / $250,000 (MFJ).
Calculating SE tax: - Net SE income × 92.35% (adjustment for the employer-equivalent deduction of 50% × 15.3% ≈ 7.65%). - Then multiply by 15.3%.
Deductions for SE tax: - 50% of SE tax is deductible "above the line" on Form 1040 (reduces AGI, not just taxable income). - SEP-IRA, SIMPLE IRA, or self-employed health insurance premiums are also deductible above the line.
Who pays: Sole proprietors, partners in a partnership, members of an LLC (unless treated as a corporation), independent contractors.
SE tax vs. FICA: Employees pay 7.65% (employee share) with the employer matching 7.65%. Self-employed pay both halves = 15.3%, but deduct 50% as a business expense.
> Exam tip: SE tax rate = 15.3% (up to SS wage base). 50% of SE tax is deductible. SE income × 92.35% = SE tax base. Tested heavily on EA Part 1 and Part 2.