Self-Employment Tax: How the 15.3% Rate Works and How the S-Corp Reduces It
Self-employment tax is the self-employed equivalent of the FICA taxes that employees and employers split. An employee pays 7.65% (6.2% Social Security + 1.45% Medicare) and the employer pays 7.65%, for a combined 15.3%. A self-employed individual pays both halves: 15.3% on net self-employment income up to the Social Security wage base ($176,100 for 2025), then 2.9% (Medicare only) on income above the wage base. An additional 0.9% Medicare surtax applies to SE income exceeding $200,000 single / $250,000 MFJ.
The self-employment tax calculation starts with net profit from Schedule C (or the partner’s share of partnership income). The net profit is multiplied by 92.35% (the equivalent of the employer-share reduction that employees get). The result is “net earnings from self-employment,” and the tax is 15.3% on the first $176,100 and 2.9% on the excess. Half of the SE tax is deductible as an adjustment to income on Form 1040 (line 15), which reduces AGI and income tax. The S-Corp strategy works by splitting income between a W-2 salary (subject to FICA) and distributions (not subject to FICA). The salary must be “reasonable” for the services performed, but the distribution portion avoids the 15.3% / 2.9% SE tax entirely. The S-Corp does NOT save income tax (salary and distributions are both subject to income tax). It saves ONLY FICA/SE tax.
How is self-employment tax calculated?
How does the S-Corp reduce SE tax?
What about income above $200,000?
Self-employed individuals earning above $200,000 (single) or $250,000 (MFJ) pay the Additional Medicare Tax: 0.9% on the excess. Combined with the regular 2.9% Medicare tax, the total Medicare rate above the threshold is 3.8%.
For S-Corp owners, the Additional Medicare Tax applies only to W-2 wages exceeding the threshold. Distributions are not subject to the Additional Medicare Tax. However, S-Corp distributions may be subject to the Net Investment Income Tax (NIIT) of 3.8% under IRC 1411 if the shareholder does not materially participate in the business (uncommon for owner-operators).
The Business Assessment is a fixed $250. You get a written, CPA-reviewed SE tax calculation, the S-Corp savings analysis, and the breakeven point for your business.
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Yarik Yarosh, CPA. "Self-Employment Tax: How the 15.3% Rate Works and How the S-Corp Reduces It." Blue Cloud CPA, September 5, 2026. https://bluecloudcpa.com/guides/self-employment-tax-calculation-guide
This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.