Self-Employment Tax Guide
Self-employment tax is the way the US collects Social Security and Medicare contributions from people who work for themselves. It is 15.3 percent of net earnings, made up of 12.4 percent for Social Security and 2.9 percent for Medicare. If you own a US LLC that is taxed as a sole proprietorship or partnership and you are a US tax resident, you generally owe it. Many non-US owners do not, which is why the residency question comes first.
Key takeaways
- The full self-employment (SE) rate is 15.3 percent on 92.35 percent of net earnings.
- The 12.4 percent Social Security part stops at an annual wage base: $168,600 in 2024, $176,100 in 2025 and $184,500 in 2026.
- The 2.9 percent Medicare part has no cap, and an extra 0.9 percent applies above certain income levels.
- Nonresident aliens are generally not subject to SE tax, but US residents and citizens who own an LLC are.
- An S-corp election can change how much of your profit is hit by SE-type tax, but it adds payroll and compliance cost.
What self-employment tax actually is
When you work for an employer in the US, your employer withholds Social Security and Medicare tax from your pay and pays a matching amount. When you work for yourself there is no employer, so you pay both halves. That is why the rate is double the 7.65 percent an employee sees on a payslip.
The tax is separate from income tax. You calculate it on Schedule SE and it is added to your Form 1040 balance. It is also paid into the same Social Security system that builds your future US benefits, subject to the work-credit rules.
The rates, split into parts
Here is how the 15.3 percent divides, and where the additional Medicare tax fits in.
| Component | Rate |
|---|---|
| Social Security (up to the wage base) | 12.4% |
| Medicare (no cap) | 2.9% |
| Additional Medicare tax (high earners) | 0.9% |
The 0.9 percent additional Medicare tax applies to earnings above a threshold that depends on filing status. It is calculated on a separate form, so read the IRS instructions for the year you file.
The Social Security wage base by year
Social Security tax applies only up to a cap that the Social Security Administration adjusts each year. Earnings above the cap are not subject to the 12.4 percent portion, though Medicare still applies.
| Year | Wage base |
|---|---|
| 2024 | $168,600 |
| 2025 | $176,100 |
| 2026 | $184,500 |
The Social Security Administration publishes each year's figure on its contribution and benefit base page. Check it when you plan your estimated payments.
How the calculation works
You do not simply multiply your profit by 15.3 percent. The steps are:
- Work out your net earnings from self-employment: business income minus allowable business expenses.
- Multiply by 92.35 percent. This adjustment approximates the employer-half deduction an employee would not see.
- Apply 12.4 percent to the result up to the wage base for the year, and 2.9 percent to the whole amount.
- Deduct half of the SE tax on your income tax return. This reduces your income tax, not the SE tax itself.
As a simple illustration, a US-resident LLC owner with $100,000 of net profit would use $92,350 as the base. Multiplying by 15.3 percent gives about $14,130 of SE tax. Actual figures depend on your full return, so treat this as an example, not a quote.
Does it apply to you as a non-US owner?
This is the question our readers ask most. In general, SE tax applies to US citizens and resident aliens. IRS guidance says nonresident aliens are usually not subject to it, even if they own a US business. That is one reason a foreign owner of a single-member LLC often pays no SE tax, although they may owe US income tax on income that is effectively connected with a US business.
The picture changes if you become a US tax resident, for example by meeting the substantial presence test or by holding a green card. Then the SE rules apply to you. A few countries also have totalization agreements with the US that can affect which system you pay into. For how US tax works for someone living abroad, read how non-US residents pay US taxes.
Ways owners reduce the SE tax burden
Deduct legitimate business expenses
Every allowable expense lowers net earnings and so lowers both income tax and SE tax. Keep clean books. Our bookkeeping guide for small business covers the records you need.
Consider an S-corp election
An LLC can elect to be taxed as an S corporation. The owner then takes a reasonable salary, which carries payroll tax, and the remaining profit passes through without SE tax. Savings are real only when profit is well above a reasonable salary, and you take on payroll filings. Read LLC vs S-Corp before deciding. An S-corp election is generally not available if you have non-US shareholders, which matters for most of our readers.
Pay estimated tax on time
SE tax is not withheld. US residents usually pay it in quarterly instalments, and late payments can carry penalties. If you are in scope, put the dates in your calendar.
A worked comparison: US resident vs nonresident owner
Take two founders who each earn $80,000 of net profit from a single-member LLC. The first is a US tax resident. After the 92.35 percent adjustment her base is $73,880, and 15.3 percent of that is about $11,304 of SE tax, before the half-deduction on her income tax return. The second lives in Pune, has no green card and has not met the substantial presence test. As a nonresident alien he generally owes no SE tax on the same profit, though he may still owe US income tax if the income is effectively connected with a US business, and he will owe tax at home.
The gap between those two outcomes is why residency planning matters more than the LLC itself. Spending a long period in the US, even as a visitor, can change your status. Count your days and ask a CPA before a long stay.
Records and payment habits that keep you safe
If you are in scope, keep a simple routine. Set aside a fixed share of every payment you receive, often 25 to 30 percent for combined income and SE tax, in a separate account. Pay quarterly estimates on the IRS schedule rather than in one lump. Keep invoices, bank statements and expense receipts for at least three years, since the IRS generally has that long to audit a return. Our bookkeeping guide shows how to set this up without special software.
Where SE tax fits in your compliance calendar
If SE tax applies to you, it appears on Schedule SE with your Form 1040. If it does not, you still have other filings, such as the state annual report and, for foreign-owned single-member LLCs, Form 5472. Our tax preparation and planning service can help you see which apply. This article is general information and not tax advice.
Frequently asked questions
What is the self-employment tax rate?
It is 15.3 percent of 92.35 percent of net earnings: 12.4 percent for Social Security up to the wage base and 2.9 percent for Medicare with no cap.
What is the Social Security wage base for 2026?
It is $184,500 for 2026, up from $176,100 in 2025 and $168,600 in 2024, according to the Social Security Administration.
Do non-US LLC owners pay self-employment tax?
Generally no if they are nonresident aliens. US citizens and residents do. Your tax residency is the deciding factor, so confirm it with a CPA.
Can an LLC avoid self-employment tax?
Not by structure alone. An S-corp election can reduce the amount subject to SE-type tax, but it needs a salary, payroll and eligible shareholders.
Is self-employment tax deductible?
Half of it is deductible when you work out your income tax. The full amount is still due on Schedule SE.
