Your self-employment tax is your Social Security
An employee pays Social Security and Medicare through payroll, and the employer pays the same amount on top. When you work on a 1099, you pay both parts yourself as self-employment tax: 12.4% for Social Security (up to the $184,500 wage base) and 2.9% for Medicare, on 92.35% of your profit.
It can feel like the most painful part of your tax bill, but it is not lost money. The Social Security Administration records your net earnings from self-employment from your Schedule SE, and they build your future benefits just like an employee’s wages do.
Credits: how you qualify
Social Security uses credits to decide whether you can get benefits:
- In 2026 you earn one credit for every $1,890 of covered earnings (wages plus net self-employment earnings).
- You can earn at most 4 credits a year. That takes $7,560 of net earnings, about $8,187 of Schedule C profit.
- You need 40 credits to qualify for retirement benefits: at least 10 years of work, not necessarily in a row.
| Schedule C profit in 2026 | Net earnings (92.35%) | Credits |
|---|---|---|
| $3,000 | $2,771 | 1 |
| $6,000 | $5,541 | 2 |
| $8,187 | $7,560 | 4 |
If your net earnings from self-employment are under $400, you owe no self-employment tax, and that income earns no credits.
Credits decide if you qualify; earnings decide how much
The number of credits does not change the size of your check. Once you qualify, your benefit is based on your average earnings over your working years. Two consequences for 1099 workers:
- Every dollar you report counts. Unreported cash income never reaches your record, so it lowers the average that sets your retirement benefit.
- Deductions have a trade-off. Business expenses lower your self-employment tax today, and also the earnings on your record. Deduct everything you are entitled to, since it is required and saves you money now, but know that a very low reported profit year after year means a smaller benefit later.
Not just retirement
The same credits protect you and your family:
- Disability benefits, if you can’t work because of a serious condition. You need fewer credits, but some of them must be recent.
- Survivor benefits for your spouse and children if you die. Under a special rule, your children, and a spouse caring for them, can qualify with fewer credits if you worked in the few years before.
- Medicare at 65. The Medicare part of your self-employment tax counts toward it.
Check your earnings record
- Create a my Social Security account on SSA.gov.
- Check every year that your earnings match what you reported on Schedule SE.
- If a year is missing or wrong, contact the Social Security Administration with a copy of your tax return. It is easier to fix soon after the year than decades later.
Tips for gig workers and freelancers
- File every year, even in a year with little profit. If you had $400 or more of net earnings, you have to file Schedule SE anyway.
- Low-profit years: the optional methods on Schedule SE can let you report more net earnings, and earn more credits, in years when your profit was small. The Schedule SE instructions explain the conditions.
- W-2 plus 1099: credits come from your total wages and self-employment earnings together, and your W-2 wages count toward the Social Security wage base first.
- Plan for retirement on your own too. Social Security replaces only part of your income. A SEP IRA or solo 401(k) lets you save more and lowers your income tax.
To see exactly how much self-employment tax you owe, use our self-employment tax calculator.