The SE tax rate is made up of two elements, the social security element and the Medicare Part A hospital insurance element. The tax has an annual cap based on a maximum wage subject to the tax (see the table above). The Medicare tax rate has been stable at 2.90% for over 25 years. However, there is no cap on the Medicare portion of the SE tax.

50% of the Social Security and Medicare taxes for employees are paid by the employer, while a self-employed person must pay both the employee and the employer portions.  To compensate for this, tax law provides a deduction equal to 7.65% of net SE earnings.  This deduction is allowed only for the purpose of figuring SE tax; the deduction is computed by multiplying net SE earnings by .9235 (100% less 7.65%) on Schedule SE. But some taxpayers pay an additional amount – see next.   

The effective rate of self-employment tax is 16.2% (12.4% + 3.8%) on any SE income above the following thresholds: $250,000 married joint, $125,000 married separate and $200,000 all others. The 3.8% rate is made up of the long-standing 2.9% (Medicare) Hospital Insurance (HI) tax plus an additional 0.9% enacted as part of the Affordable Care Act. (Code Sec. 1402(a)(12))

The SE tax computation deduction described above does not include the 0.9% additional HI tax. The SE income more than the threshold amount that is subject to the 0.9% additional SE tax rate is reduced by the amount of wages, if any, that were also subject to the additional 0.9% tax for FICA purposes. Additional Medicare Tax, the computation for the additional 0.9% HI tax, is done on Form 8959 and not on Sch. SE. 

If a self-employed individual has both wages subject to FICA and SE income, the maximum amount subject to the Social Security portion of the SE tax is reduced by the wages subject to FICA. There is no adjustment for Medicare tax since there is a no cap.

Fiscal year taxpayers must use the SE tax rate and maximum income limit in effect at the beginning of their tax year, even if the rate and limit change during the tax year.