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 2025, Social Security taxes apply only to the first $176,100 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 2025, Asher has wages of $100,000. In addition, Asher has self-employment income of $90,000. Since the Social Security wage base is $176,100, only $13,900 of Asher’s $90,000 of self-employment is 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