What is self-employment tax and how does it affect online sellers? (2026)
Self-employment tax is the 15.3% tax that online sellers, freelancers, and independent contractors pay on net business profit. It covers Social Security and Medicare — the same programs funded by payroll taxes on W-2 workers, except you pay both the employee and employer share. For 2026, the Social Security wage base is $184,500. Here's the exact calculation and how to reduce it.
What self-employment tax actually is
As an employee, your employer withholds 7.65% from your paycheck for Social Security and Medicare, then pays another 7.65% on your behalf. When you're self-employed — including selling online — there's no employer. You pay the full 15.3%. This is separate from and in addition to federal income tax.
It's calculated on Schedule SE (Form 1040) and applies to anyone with net self-employment earnings of $400 or more.
2026 rates and the Social Security wage base
| Component | Rate | 2026 income cap |
|---|---|---|
| Social Security | 12.4% | First $184,500 of net earnings |
| Medicare | 2.9% | No cap — all earnings |
| Additional Medicare (high earners) | 0.9% | Above $200,000 (single) / $250,000 (MFJ) |
| Standard combined rate | 15.3% | Up to $184,500 |
The wage base increased to $184,500 for 2026, up from $176,100 in 2025 — roughly $1,042 more in maximum Social Security tax for high earners.
The exact calculation
Step 2: Taxable SE earnings × 0.153 = Self-employment tax
Step 3: SE tax ÷ 2 = Above-the-line deduction on Form 1040
The 0.9235 multiplier exists because W-2 employees don't pay income tax on their employer's FICA contribution. The IRS gives self-employed people equivalent treatment.
Get the SE tax quick-reference card (PDF)
Calculation formula, rate table at 5 income levels, and the 5 ways to legally reduce SE tax — on one printable page.
Real example: $50,000 net profit
$46,175 × 0.153 = $7,065 self-employment tax
$7,065 ÷ 2 = $3,533 deductible from AGI
Out-of-pocket SE tax: $7,065 (with $3,533 reducing your income tax)
SE tax at different income levels
| Net profit | SE tax owed | AGI deduction | Effective SE rate |
|---|---|---|---|
| $15,000 | $2,120 | $1,060 | 14.1% |
| $30,000 | $4,239 | $2,120 | 14.1% |
| $50,000 | $7,065 | $3,533 | 14.1% |
| $75,000 | $10,598 | $5,299 | 14.1% |
| $100,000 | $14,130 | $7,065 | 14.1% |
Five ways to legally reduce self-employment tax
- Maximize every business deduction. SE tax is calculated on net profit. Every dollar of COGS, platform fees, shipping, and home office reduces both income tax and SE tax. See our complete deductions list.
- Contribute to a retirement account. SEP IRA and Solo 401(k) contributions reduce AGI and lower income tax (though not SE tax directly).
- Claim the 50% SE tax deduction. Automatic when you file Schedule SE — reduces income tax.
- Consider S-Corp election above $75K–$80K. Split income between salary (subject to SE tax) and distributions (not subject). Potential savings of $5,000–$10,000+/year, though compliance costs $3,500–$5,000/year.
- Deduct self-employed health insurance. An above-the-line deduction that reduces AGI and income tax.