Self-Employment Tax Explained

What the 15.3% actually is

• 12.4% for Social Security (on wages up to the annual wage base)
• 2.9% for Medicare (no cap)
• Additional 0.9% Medicare surtax on earnings above $200K single / $250K joint
• Together: the same payroll taxes a W-2 job splits between employer and employee — you pay both halves

How it's calculated

SE tax applies to 92.35% of your net self-employment income (Schedule C profit, plus any K-1 SE earnings). You report it on Schedule SE and add it to your 1040.

The deduction that softens the blow

You get to deduct half of your SE tax as an above-the-line adjustment on Schedule 1. It doesn't reduce SE tax itself — only your income tax — but it's automatic and material.

How S-Corp election changes SE tax

Inside an S-Corp, only the wages you pay yourself are subject to payroll taxes. Distributions on top of a reasonable salary avoid SE tax — which is the entire point of the election. The IRS scrutinizes salaries that look unreasonably low.