Self-Employment Tax Explained: The 15.3% Every Business Owner Pays

What Is Self-Employment Tax?

Self-employment (SE) tax is 15.3% of your net self-employment income. It covers Social Security (12.4%) and Medicare (2.9%). As a business owner, you pay both the employer and employee portions.

How It Is Calculated

First, multiply your net profit by 92.35% (this is your SE tax base). Then apply the 15.3% rate. For 2025, only the first $168,600 is subject to the Social Security portion.

Deduction Benefit

You can deduct half of your SE tax from your gross income, which reduces your income tax. This effectively makes the real SE tax rate closer to 14%.

Strategies to Reduce SE Tax

1. S-Corp election — Pay yourself a reasonable salary, take the rest as distributions
2. Maximize business deductions — Lower net profit = lower SE tax
3. Retirement contributions — SEP-IRA or Solo 401(k) reduce taxable income