The mechanic
Self-employment tax applies 15.3% to 92.35% of net profit. The 92.35% factor exists because employees' FICA is charged on gross wages while the self-employed are effectively both employer and employee — the adjustment prevents double taxation of the employer half.
Two components, two caps
- Social Security: 12.4%, capped at the wage base ($176,100 for 2025)
- Medicare: 2.9%, no cap, plus 0.9% additional above 200k/250k
- Half of the total is deductible against income tax
- W-2 wages count toward the same wage base if you have both
Who pays it
Sole proprietors, single-member LLCs, partners and most freelancers. S-corporation owners pay it only on reasonable salary, not distributions — which is the entire reason the S-corp election exists for higher earners.
Planning notes
At 75,000 net profit the SE tax is about 10,600. If profit consistently exceeds roughly 80,000, the S-corp election can save several thousand a year in SE tax, at the cost of payroll administration and reasonable-compensation documentation. Model it with an accountant before electing.
Frequently Asked Questions
Is SE tax the same as income tax?
No — it funds Social Security and Medicare and is charged in addition to income tax.
Why 92.35%?
It approximates the employee/employer split so the self-employed are not taxed on the employer half twice.
Does an S-corp avoid SE tax?
On distributions yes; you still pay payroll tax on a reasonable salary.
Assumptions & disclaimer
Results are estimates for planning. Fee schedules, tax brackets and deduction limits change; confirm current figures with the marketplace, the IRS or a qualified accountant before making decisions. Nothing here is financial, tax or legal advice.
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