8573 / Who must pay the self-employment tax?
An individual who has annual net earnings from self-employment of $400 or more is subject to self-employment tax.1 Generally, sole proprietors, single member LLCs treated as a disregarded entity and general partners are considered to be self-employed. Self-employment tax is reported on Schedule SE attached to Form 1040. However, a self-employed taxpayer is entitled to an above-the-line deduction equal to one-half of the self-employment tax paid.2
In essence, self-employment tax is the combination of Social Security tax and Medicare tax. The Social Security tax rate is 12.4 percent and the Medicare tax rate is 2.9 percent.3 For 2026, Social Security taxes apply only to the first $185,400 of self-employment income. If the taxpayer has both wages and self-employment income, the amount of self-employment income subject to the Social Security tax is the difference between the cap amount and the amount of the taxpayer’s wages.
Example: In 2026, Asher has wages of $100,000. In addition, Asher has self-employment income of $90,000. Since the Social Security wage base is $184,500, $5,500 of Asher’s $90,000 of self-employment is not subject to Social Security tax.
On the other hand, in regard to Medicare tax, there is no cap on the amount of self-employment income that is subject to the tax. Also, for self-employed individuals with income that exceeds certain threshold amounts, an additional Medicare tax of 0.9 percent may be added to the base 2.9 percent Medicare rate, for a total tax of 3.8 percent. The additional tax applies for self-employed individuals with income in excess of $250,000 for joint filers, $125,000 for married taxpayers filing separately and $200,000 for all other taxpayers.4