What Is Self-Employment Tax, and Why Does Your First Year Hurt?

Self-employment tax is the 15.3% Social Security and Medicare tax you pay on net business profit. It’s on top of income tax. You pay it because you now cover both the employee half and the employer half. Your first year hurts because nobody took it out. So save 25 to 30 percent of every payment from day one.

Run your own numbers: free self-employment tax calculator, 2026 rates.

You went self-employed. You made good money your first year. You saved money for taxes. You thought you were ready. Then April comes, and the bill is twice what you expected. First you panic. Then you get angry. Nobody told you about this.

What actually happened

When you had a regular job, your employer paid half of your Social Security and Medicare taxes. You only saw your half come out of your paycheck. The other half was there, but you never had to think about it.

The moment you became self-employed, you became both the employer and the employee. So you owe both halves now. That is what the 15.3 percent self-employment tax is. It is not a punishment. It is the same Social Security and Medicare payment every worker makes. You just see it now because nobody is splitting it with you.

How the 15.3% breaks down

12.4 percent Social Security and 2.9 percent Medicare. It applies to your net business income up to a wage base limit. Above that, it drops a bit.

That is on top of regular federal income tax. Depending on your bracket, that adds another 10 to 24 percent. So in your first self-employed year, 25 to 40 percent of your net income could go to taxes.

The one deduction you get back automatically

You can deduct half of your self-employment tax on your federal income tax return. So that 15.3 percent feels more like 11 to 12 percent in real terms.

When April comes, you won't panic. The money will already be saved.