Do I pay self-employment tax on my entire 1099 income?

The base for SE tax is your Schedule C net profit, not gross revenue. If you receive $150,000 in 1099 income and have $25,000 of legitimate business expenses, your net profit is $125,000. That $125,000 is the starting point for SE tax, not the $150,000. Every dollar of legitimate business expense you capture reduces the SE tax base by one dollar, saving you roughly 14 cents of SE tax in addition to whatever income tax it saves.

The 92.35% adjustment then reduces the base further. The IRS multiplies your net profit by 92.35% (which is 1 minus 7.65%) before applying the 15.3% rate. This factor exists because a W-2 employee's employer pays half of FICA without it appearing in the employee's wages; the adjustment makes the self-employed treatment roughly equivalent. On $125,000 net profit, the net SE income is $115,438, and SE tax is roughly $17,662. The effective SE tax rate on net profit is approximately 14.13%, not 15.3%.

The Social Security portion caps at the wage base. The 12.4% Social Security rate only applies to the first $176,100 of net SE income in 2026 (this figure is set annually by SSA). Above that, only the 2.9% Medicare portion applies. At $200,000 net profit, your net SE income is $184,700; SS tax is capped at $176,100 times 12.4% ($21,836), and Medicare runs on the full $184,700 ($5,356). Total SE tax is roughly $27,192, an effective rate of 13.60% on net profit, less than the 14.13% effective rate at lower incomes.

Above $200,000 (single) or $250,000 (married filing jointly), an additional 0.9% Medicare surtax applies to net SE income exceeding the threshold. There is no employer match for this surtax, so it falls entirely on the self-employed person. At $300,000 net profit, your net SE income is $277,050; the additional Medicare tax adds $693 (approximately $77,050 times 0.9%), bringing total SE tax to roughly $30,563 and the effective SE rate to 10.19% on net profit.

Three implications follow. First, business expense tracking is the single biggest lever for reducing SE tax. Every $1,000 in caught expenses saves roughly $141 in SE tax alone. Second, at incomes above the wage base, the marginal cost of additional 1099 income drops to about 2.9% in SE tax terms. Third, the S-corp election is most powerful between $80,000 and $200,000 of net profit, where the full 15.3% combined rate applies and replacing SE tax with FICA on a smaller W-2 salary produces large savings. Above the wage base, the savings continue but at a slower rate.