Social Security when you work for yourself
A sole proprietor pays both halves of the payroll tax, and the same Schedule SE figure later becomes the earnings the SSA uses for the benefit.
Checked by Radif Partners · Editorial policy · How we calculate
Self-employed workers pay Social Security and Medicare through self-employment tax: 12.4% for Social Security plus 2.9% for Medicare, 15.3% in all, applied to 92.35% of net profit (IRS Topic 554). The 12.4% part stops at the 2026 contribution and benefit base of $184,500 of net earnings, reached at about $199,783 of profit; the Medicare part has no cap. No tax is due when net earnings from self-employment are under $400. On a $60,000 profit, the tax is $8,478: $6,871 for Social Security and $1,607 for Medicare, and the $55,410 of net earnings earn the year's 4 credits. The same net earnings go on your Social Security record, so every business deduction that lowers the tax also lowers future benefits: over a career, $70,000 of yearly profit builds a PIA of $2,470 and $55,000 a PIA of $2,100, for a worker born in 1970.
Self-employment tax on your 2026 profit
Self-employment tax
$8,478
| Net earnings counted (92.35%) | $55,410 |
| Social Security part (12.4%) | $6,871 |
| Medicare part (2.9%) | $1,607 |
| Credits earned in 2026 | 4 of 4 |
Additional Medicare tax above the IRS thresholds is not included.
From net profit to Schedule SE
Self-employment tax starts from the profit on Schedule C (or your partnership share), gross receipts minus ordinary and necessary business expenses. The IRS Topic 554 then takes 92.35% of that profit as net earnings from self-employment, and applies two rates: 12.4% for Social Security on net earnings up to the contribution and benefit base, $184,500 in 2026 (SSA base table), and 2.9% for Medicare on all of it. Nothing is due when net earnings are under $400.
| Net profit | Net earnings (92.35%) | Social Security 12.4% | Medicare 2.9% | Total SE tax | Credits |
|---|---|---|---|---|---|
| $5,000 | $4,618 | $573 | $134 | $706 | 2 |
| $20,000 | $18,470 | $2,290 | $536 | $2,826 | 4 |
| $60,000 | $55,410 | $6,871 | $1,607 | $8,478 | 4 |
| $120,000 | $110,820 | $13,742 | $3,214 | $16,955 | 4 |
| $199,783 | $184,500 | $22,878 | $5,350 | $28,228 | 4 |
| $250,000 | $230,875 | $22,878 | $6,695 | $29,573 | 4 |
Two thresholds stand out. Around $199,783 of profit, net earnings hit $184,500 and the Social Security part stops growing at $22,878; above it only the 2.9% Medicare part continues. At the other end, about $8,187 of profit earns the four credits allowed in a year. The IRS adds an additional Medicare tax above $200,000 for single filers and $250,000 on joint returns, computed on Form 8959 and not shown here.
Paying both halves, and deducting one
An employee pays 6.2% plus 1.45% and the employer pays the same again. A sole proprietor is both, which is why the rates double. Two adjustments soften the comparison: the 92.35% factor removes the equivalent of the employer's share from the base, and half of the self-employment tax is deductible when you compute adjusted gross income. That deduction lowers income tax only; your Social Security earnings stay at the full net earnings figure.
Credits come from net earnings, not from the tax paid
The SSA counts one credit for each $1,890 of covered earnings in 2026, four at most (SSA credits page). For a self-employed person, covered earnings are the net earnings from self-employment, so a $20,000 profit gives $18,470 and the full 4 credits. Credits decide eligibility, 40 for retirement benefits; the amount depends on the earnings themselves. When profit is small or negative, the IRS allows two optional methods on Schedule SE that can still produce credits; the Schedule SE instructions set out who may use them.
Every deduction has a price in benefits
The profit you report is also the earnings the SSA writes on your record. The IRS notes that the SSA uses the information from Schedule SE to compute your benefits. A legitimate business expense lowers income tax, self-employment tax and future Social Security at the same time. The table follows a worker born in 1970 who reports the same profit, in today's money, for exactly 35 years, from 27 to 61.
| Yearly net profit | Social Security tax per year | AIME | PIA | Monthly at 67 |
|---|---|---|---|---|
| $40,000 | $4,581 | $3,078 | $1,730.80 | $1,730 |
| $55,000 | $6,298 | $4,232 | $2,100.10 | $2,100 |
| $70,000 | $8,016 | $5,387 | $2,469.70 | $2,469 |
| $100,000 | $11,451 | $7,695 | $3,208.20 | $3,208 |
Reporting $55,000 instead of $70,000 for a whole career saves $2,119 of self-employment tax a year, and lowers the PIA from $2,469.70 to $2,100.10, $369.60 a month for life. A single year matters much less, because the AIME averages 35 years: an extra $10,000 of expenses in 2030 saves $1,413 of self-employment tax that year and lowers the PIA by $7.10 a month, because with exactly 35 years of earnings every year counts. Whether the trade is worth it depends on your bracket in the PIA formula, your expected years of retirement and your income tax, which this page does not model.
Still self-employed after you claim
Self-employment tax has no age limit. The IRS page on self-employment tax confirms that the rules apply at any age, and Topic 554 adds that receiving benefits does not exempt you. Two consequences follow. A good year at 66 or 68 can replace a weaker year among your 35 best and raise your benefit, which the SSA recomputes automatically. And before full retirement age, net earnings from self-employment count toward the earnings test: $24,480 in 2026, with $1 withheld for every $2 above it. For the monthly test in the first year, the SSA publication on work and benefits treats more than 45 hours a month in the business as generally not retired, and fewer than 15 hours as retired.
Where to go from here
The cap of $184,500 and the credit amount of $1,890 move every year with average wages; the taxable maximum page shows how the cap evolved. To see what your own Schedule SE history is worth, paste the net earnings of each year into the benefits calculator: it indexes them, keeps the best 35 and applies the formula, exactly as it would for wages.