What Is Self-Employment Tax? FICA, Schedule, and the Deduction Explained
Self-employment tax is the federal mechanism that funds Social Security and Medicare for people who work for themselves — covering both the employee and employer halves of FICA, which comes to 15.3% of net earnings under 2025 IRS rules. For a full breakdown of how that rate interacts with federal income tax across different income levels, see the 1099 Tax Rate guide.
FICA: The Foundation of Self-Employment Tax
FICA stands for the Federal Insurance Contributions Act — the law that created mandatory payroll contributions for Social Security and Medicare. For W-2 employees, FICA is split between worker and employer on the paycheck. For the self-employed, the IRS treats you as both parties, so the entire FICA obligation falls on you. The 15.3% breaks into two parts: 12.4% for Social Security (applied only up to the first $176,100 of net earnings, 2025 IRS rules) and 2.9% for Medicare with no income ceiling.
One practical consequence: self-employment tax is calculated on top of federal income tax, not instead of it. Most freelancers owe both, which pushes the real combined rate well above 15.3% alone. The 1099 Taxes Calculator lets you model how those two layers interact at your actual income level.
Schedule: How the IRS Collects It
Schedule (Self-Employment Tax) is the IRS form where you calculate exactly what you owe. The math follows a specific sequence: start with net self-employment earnings, multiply by 92.35% (an adjustment for the employer-equivalent half), then apply the 15.3% rate to that adjusted figure. You attach Schedule to your Form 1040 each year — it is not filed separately. To run this calculation with your own numbers, the 1099 Taxes Calculator walks through each step automatically.
Schedule feeds its result directly into Form 1040, where it becomes part of your total tax liability. You don't file Schedule separately — it travels with your annual return. If your net self-employment income for the year stays below $400, Schedule is not required (2025 IRS rules). This is an estimate based on 2025 IRS rules, not a substitute for professional tax advice.
The Self-Employment Tax Deduction on Form 1040
Once Schedule determines what you owe, Form 1040 gives you a partial offset: you can deduct the employer-equivalent half of your self-employment tax — that's 7.65% — from your gross income when calculating federal income tax. This is an above-the-line deduction, meaning it reduces your adjusted gross income (AGI) without requiring itemization.
The deduction doesn't reduce your self-employment tax itself — that figure is already set. What it does is lower the income base on which your federal income tax is calculated, so you pay slightly less income tax as a result. No receipts or extra documentation are required; the IRS builds the deduction into the Form 1040 calculation automatically once Schedule is complete.
What Actually Counts as Self-Employment Income
Self-employment tax applies to net earnings — revenue minus allowable business expenses — not gross client payments. Common deductions that reduce the net figure include home office expenses, business mileage, software used exclusively for client work, and self-employed health insurance premiums. For a detailed breakdown of which deductions apply and how they affect your combined tax rate, see the 1099 Tax Rate guide.
If you receive 1099-NEC forms from clients, those amounts represent gross payments — you still need to subtract your business expenses before Schedule applies. The 1099 Taxes Calculator walks through the net earnings calculation with your actual numbers, no sign-up required.