How do self-employment taxes work? A step-by-step guide.

Core Points - The self-employment tax is a 15.3% tax that self-employed individuals must pay for Social Security and Medicare, which is higher than the 7.65% paid by traditionally employed workers due to the absence of employer contributions [1][4][3] - Self-employed individuals are responsible for calculating and withholding their own self-employment taxes, which include both Social Security and Medicare taxes [1][4] - The Social Security wage cap for 2026 is set at $184,500, an increase from $176,100 in 2025, meaning earnings above this threshold are exempt from Social Security taxes [5] - Self-employed individuals pay 12.4% in Social Security taxes and 2.9% in Medicare taxes, with an additional 0.9% Medicare tax applicable for high earners [5][6] - Self-employment tax applies to individuals with a net income exceeding $400 from self-employment activities [7][27] Tax Calculation and Filing - To calculate self-employment taxes, individuals multiply their net earnings by 0.9235 to determine taxable income, then apply the 15.3% tax rate [11][14] - Self-employed individuals must file using IRS Form 1040 or 1040-SR, and use Schedule C to report net profit or loss [15] - Quarterly estimated tax payments are required if the expected tax liability exceeds $1,000, with specific thresholds to avoid underpayment penalties [19][20][21] Deductions and Tax Benefits - Self-employed individuals can deduct self-employment taxes and may qualify for the Qualified Business Income (QBI) deduction, which allows for a deduction of up to 20% of profits [22][18] - The QBI deduction phases out for single filers earning over $197,300 in 2025 and $201,750 in 2026, and for married couples filing jointly starting at $394,600 in 2025 and $403,500 in 2026 [22] Filing Schedule and Requirements - Self-employment taxes are due quarterly, with specific deadlines that do not align with traditional quarterly periods [25] - Self-employment income does not include earnings from W-2 employment, which are subject to FICA taxes instead [26]