How we calculate self-employment and income tax

2026 tax year constants

Step 1 — net SE earnings

The 92.35% factor accounts for the employer-equivalent portion of SE tax. It mirrors the employee payroll-tax deduction that W-2 employees receive automatically.

This is line 4a of Schedule SE. Steps 1 to 4 follow the form's Part I in order, and the IRS Instructions for Schedule SE (Form 1040) explain each line the same way.

Net SE earnings under $400 are not self-employment income (26 U.S.C. § 1402(b)(2)), and line 4c of Schedule SE says to stop there. The test comes after the 92.35% factor, so it takes $434 of profit to owe any SE tax. W-2 wages don't count toward it. Below the floor, steps 2 to 5 treat net SE earnings as zero. This is a different $400 from the § 199A minimum deduction in step 6.

Step 2 — dual income: SS cap absorption

W-2 wages absorb the Social Security wage base first. This is the most common calculation error on competitor sites. A freelancer who also has a W-2 job never double-pays Social Security tax.

Step 3 — SE tax calculation

Step 4 — above-the-line deduction

This deduction reduces adjusted gross income and is available even when taking the standard deduction. It represents the employer-equivalent half of SE tax.

Step 5 — Additional Medicare Tax

Step 6 — the § 199A qualified business income deduction

A 1099 business is normally a qualified trade or business, so its owner may deduct up to 20% of its income before federal income tax. The One, Big, Beautiful Bill Act (Pub. L. 119-21, § 70105) made § 199A permanent — it had been due to expire after 2025 — widened the phase-in range, and added a minimum deduction from 2026. We follow Form 8995 and Form 8995-A line by line.

What counts as QBI

Schedule C net profit, reduced by the deductible part of self-employment tax. The Instructions for Form 8995 list that deduction among the items attributable to the trade or business, alongside the self-employed health insurance deduction and qualified retirement contributions. Your own W-2 wages are not QBI — performing services as an employee is not a trade or business under § 199A — but they do count toward taxable income, so they push you toward and through the threshold below.

The threshold, and the phase-in range above it

Below the threshold the deduction is simply 20% of QBI, capped at 20% of taxable income. Above it, two limits begin to apply at once, both reaching full strength at the top of the range.

Thresholds and range tops from Rev. Proc. 2025-32 § 2.26; the range widths are the statutory § 199A(b)(3)(B) figures. Taxable income here means taxable income computed before the § 199A deduction — § 199A(e)(1).

The wage and property limit — and the assumption we make

Above the threshold the deduction is also capped by the greater of 50% of the W-2 wages the business pays, or 25% of those wages plus 2.5% of the cost of its qualified property (§ 199A(b)(2)(B)). This calculator assumes the business pays no W-2 wages and holds no qualified property, which is the ordinary case for a one-person 1099 practice. The consequence is real and it is stated beside every figure the calculator produces: with no wages and no property that cap is zero, so the deduction tapers to nothing across the phase-in range and is nil above it, apart from the minimum below. If your business has payroll or depreciable equipment, your deduction is larger than the one shown here and you need Form 8995-A itself.

Specified service trades or businesses

Health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage, and any trade or business whose principal asset is the reputation or skill of its employees or owners, are specified service trades or businesses under § 199A(d)(2). Below the threshold that makes no difference at all. Inside the range, Schedule A (Form 8995-A) reduces the income taken into account by the same proportion the phase-in has run — so an SSTB is reduced twice, once on the way in and again by the wage limit, which is why its deduction falls away roughly twice as fast. Above the top of the range an SSTB is excluded outright and receives nothing, not even the minimum.

The 2026 minimum deduction

New for 2026: a taxpayer with at least $1,000 of QBI from qualified trades or businesses they materially participate in gets a deduction of at least $400 (§ 199A(i), added by OBBBA § 70105). It overrides the taxable-income limit as well as the wage limit — Form 8995 line 17 takes the greater of the computed figure and the minimum. Both amounts are the statutory ones: § 199A(i)(3) indexes them for inflation only from 2027.

Step 7 — federal income tax

The order matters and runs one way only. Half of SE tax reduces AGI; the standard deduction reduces that; § 199A is computed on the result and then reduces it again. Nothing feeds backwards.

Quarterly estimated payments

Due dates for tax year 2026, computed from the statutory 15th of the 4th, 6th and 9th months and the 15th of the month after year end, each shifted under IRC § 7503 if it falls on a weekend or a legal holiday:

• Q1 — April 15, 2026
• Q2 — June 15, 2026
• Q3 — September 15, 2026
• Q4 — January 15, 2027

Mileage deduction