Self-employment tax, line by line: the 92.35% adjustment, the wage base, and QBI

By DecisionSheet · Updated September 22, 2026 · 2026 tax figures

This page follows one contractor's tax bill through the 1099 vs. W-2 calculator, one line at a time: $150,000 of revenue, $10,000 of business expenses, $7,200 a year on a private health plan, single filer, 2026 federal rules and a flat 5% state tax. The result is $19,781 of self-employment tax, $37,564 of tax in all and $95,236 left to spend (open this scenario).

Whether that beats a salary is a separate question, answered in What 1099 hourly rate equals a $100k salary?.

The base: 92.35% of net profit

The model starts from net profit — revenue less business expenses — which is $140,000. The IRS says that "generally, the amount subject to self-employment tax is 92.35% of your net earnings from self-employment" (Topic no. 554). The model multiplies by 92.35%, giving a base of $129,290.

The $7,200 premium does not reduce this base. The self-employed health insurance deduction cannot be subtracted when figuring net earnings for self-employment tax (Instructions for Form 7206); the model deducts it only from income tax, further down.

The two taxes, and the wage base

Self-employment tax is two taxes at a combined 15.3%: 12.4% for Social Security and 2.9% for Medicare (Topic no. 554).

• Social Security applies only up to the wage base, $184,500 for 2026 (Publication 15). The base case is below it, so 12.4% of $129,290 is $16,032.
• Medicare has no cap: 2.9% of $129,290 is $3,749.
• Additional Medicare Tax is a further 0.9% on self-employment income above $200,000 for a single filer (Topic no. 560). The model measures that threshold against the same 92.35% base. The base case is below it and owes $0.

Together: $19,781.

Half of it comes off income

An individual can deduct one-half of self-employment tax in arriving at adjusted gross income (Topic no. 554). The model subtracts $9,891 from net profit, and then the $7,200 premium. What remains, $122,909, is the figure the model treats as qualified business income.

Income tax on what is left

The $16,100 standard deduction for a single filer comes off next, leaving $106,809 of taxable income before the QBI deduction. After that deduction (the next section) taxable income is $85,447, taxed in pieces under the 2026 brackets (IRS inflation adjustments for 2026):

That is $13,510 of federal income tax. The model's state estimate is 5% of the same $85,447: $4,272.

The QBI deduction

Section 199A lets an eligible owner of a pass-through business deduct up to 20% of qualified business income, limited to 20% of taxable income less net capital gain (Qualified business income deduction). In the base case, 20% of $122,909 would be $24,582, but 20% of the $106,809 of taxable income is $21,362, so the deduction is $21,362. With no other income in the model, taxable income before the deduction is always qualified business income less the standard deduction, so below the threshold described next it is this taxable-income limit, not the 20% of business income, that sets the figure.

Total tax is self-employment tax plus federal and state income tax: $37,564.

What changes above the thresholds

Two more scenarios differ from the base case in gross revenue only: $240,000 and $300,000.

At $240,000, the base of $212,405 is past the wage base, so Social Security stops at $22,878 and $27,905 of the base carries Medicare only. It is also $12,405 past the Additional Medicare threshold, which adds $112.

The half-SE-tax deduction leaves that 0.9% out. The deduction in 26 U.S.C. §164(f) is one-half of the self-employment taxes "other than the taxes imposed by section 1401(b)(2)" — which is the Additional Medicare Tax (§1401(b)(2)), and Schedule SE halves only the Social Security and Medicare lines. The model halves $22,878 plus $6,160, a deduction of $14,519 rather than $14,575, half the $29,149 total.

At $300,000, taxable income before the deduction is $251,378, $49,628 above the $201,750 threshold (Rev. Proc. 2025-32, §4.26). Above it, the deduction is limited by W-2 wages the business pays and its qualified property; the model's contractor has neither. It phases the unlimited $53,496 down in a straight line across the $75,000 range that ends at $276,750: 66.2% of the way through, the deduction is $18,097.

The last two rows are rates. The marginal rate is the change in total tax, as a share of $1,000, when the model is re-run with $1,000 more revenue. It is lower at $240,000 than at $150,000: for those extra dollars the 12.4% Social Security tax no longer applies, while the bracket is 24% and the 0.9% applies.

At $300,000 the marginal rate is 63.7%, in four parts (rounded): 2.7% Medicare and 0.8% Additional Medicare Tax, both charged on 92.35% of each dollar; 52.0% federal income tax; and 8.1% state tax. The income-tax parts fall on more than $1,000 of taxable income. $1,000 more revenue raises the half-SE-tax deduction by $13.39, so taxable income before the QBI deduction rises by $986.61; the QBI deduction falls by $639.56; together, taxable income rises by $1,626.17. That added taxable income is taxed at the 32% bracket and the 5% state estimate.

The effective rate is the one the model reports: total tax divided by gross revenue, not by profit. It rises across the three.

Assumptions and limits

• Single filer, $16,100 standard deduction, 2026 brackets. No other income: no wages and no investment income.
• State tax is a flat 5% of federal taxable income after the QBI deduction. No state's real rules are modeled.
• No retirement contributions.
• Qualified business income is net profit less half of self-employment tax and the health premium. The model does not ask what kind of business it is; the IRS lists the type of trade or business among the factors that can limit the deduction.
• Annual totals only. The model does not compute quarterly estimated payments, penalties or withholding, and says nothing about how the business is organized.

Method and sources

Every figure is from calculateContractorVsW2 in the 1099 vs. W-2 calculator. The model exports totals and three of the lines (the Additional Medicare Tax, the half-SE-tax deduction and the QBI deduction); every other line here is recomputed from the same constants and checked against what the model exports. Figures are rounded to the dollar (the $1,000 step amounts to the cent), so a sum can be a dollar off its parts.

• Topic no. 554 — the 12.4% and 2.9% rates, the 92.35% of net earnings, and the deduction for one-half of the tax.
• Topic no. 560 — the 0.9% Additional Medicare Tax and the $200,000 threshold.
• Publication 15 — the 2026 wage base of $184,500.
• Tax inflation adjustments for 2026 — the $16,100 standard deduction and the brackets.
• Rev. Proc. 2025-32, §4.26 — the $201,750 threshold and the phase-in range ending at $276,750.
• Qualified business income deduction — the 20% deduction, the taxable-income limit and the wage and property limitation.
• Instructions for Form 7206 — the health insurance deduction does not reduce net earnings for self-employment tax.
• 26 U.S.C. §164(f) and §1401(b)(2) — the half-SE-tax deduction excludes the Additional Medicare Tax.
• Schedule SE (Form 1040), lines 10–13 — the deduction is half of the Social Security and Medicare lines.

Open this scenario in the calculator

All figures on this page come from the 1099 vs. W-2 calculator. Change any input there and the numbers update.