If you work for yourself in California, expect to pay 15.3 percent federal self-employment tax on 92.35 percent of your net business profit, plus California state income tax on that same profit at ordinary rates ranging from 1 percent to 13.3 percent. There is no separate self-employment tax in California; the state simply taxes your business earnings as ordinary income alongside any other income you have.
The 15.3 Percent Federal Rate
The federal self-employment tax has two parts: 12.4 percent for Social Security and 2.9 percent for Medicare, adding up to 15.3 percent.1Office of the Law Revision Counsel. 26 USC 1401 – Rate of Tax It applies once your net earnings from self-employment reach $400 for the year.2Internal Revenue Service. Topic No. 554, Self-Employment Tax
The Social Security portion has a ceiling. For 2026, the 12.4 percent applies only to the first $184,500 of net self-employment earnings.3Social Security Administration. Contribution and Benefit Base Anything above that is still hit with the 2.9 percent Medicare piece, which has no cap. If your self-employment income tops $200,000 as a single filer or $250,000 filing jointly, an extra 0.9 percent additional Medicare tax applies to the amount above the threshold.4Internal Revenue Service. Topic No. 560, Additional Medicare Tax
How the 92.35 Percent Rule Changes the Math
You do not pay 15.3 percent on every dollar of net profit. You multiply your net self-employment income by 92.35 percent first, then apply the rate.2Internal Revenue Service. Topic No. 554, Self-Employment Tax The adjustment reflects the employer share of payroll taxes that a traditional worker never has to count as income.
Say your Schedule C net profit is $100,000. The taxable base becomes $92,350, and self-employment tax runs about $14,130. You can then deduct half of that (roughly $7,065) from your gross income on Schedule 1 of Form 1040, which lowers both your federal income tax and, because California starts from federal adjusted gross income, your state tax as well.2Internal Revenue Service. Topic No. 554, Self-Employment Tax
California Income Tax on Your Business Profit
California does not add a self-employment tax of its own. Your net profit flows into your Form 540 as ordinary income and is taxed under the same progressive brackets that apply to wages.5Franchise Tax Board. 2025 California Tax Rate Schedules For single filers in the 2025 tax year:
- 1% on taxable income up to $11,079
- 2% from $11,080 to $26,264
- 4% from $26,265 to $41,452
- 6% from $41,453 to $57,542
- 8% from $57,543 to $72,724
- 9.3% from $72,725 to $371,479
- 10.3% from $371,480 to $445,771
- 11.3% from $445,772 to $742,953
- 12.3% on taxable income over $742,953
Joint filers get roughly double the width in each bracket; the 12.3 percent rate does not start until taxable income exceeds $1,485,906.5Franchise Tax Board. 2025 California Tax Rate Schedules Taxable income is your federal AGI adjusted on Schedule CA (540), minus either the California standard deduction ($5,706 single, $11,412 joint for 2025) or your itemized deductions.6Franchise Tax Board. Deductions
The 1 Percent Mental Health Surcharge
Taxable income above $1 million carries an additional 1 percent, pushing the top marginal rate to 13.3 percent. This Mental Health Services Tax applies regardless of whether the income comes from wages, business profit, or investment gains.7California Legislative Information. California Revenue and Taxation Code 17043
A California Catch on the Half-SE-Tax Deduction
California generally follows the federal treatment and lets you take the deduction for half of your self-employment tax. There is one wrinkle. If you are a federal independent contractor but classified as an employee under California law, the deduction is not allowed on your state return, and you have to add it back on Schedule CA (540), line 15.8Franchise Tax Board. 2024 Instructions for Schedule CA (540) California Adjustments Because California’s worker-classification rules under AB 5 are stricter than the federal test, this mismatch is more common here than elsewhere. Verify your classification before claiming the deduction on your state return.
Paying It: Quarterly Estimated Taxes
No employer is withholding tax from a self-employed check, so you owe estimated payments to both the IRS and the California Franchise Tax Board throughout the year. The federal schedule is four equal installments due April 15, June 15, September 15, and January 15 of the following year.9Internal Revenue Service. Estimated Taxes
California’s schedule is front-loaded and uneven:10Franchise Tax Board. Estimated Tax Payments
- April 15: 30 percent of estimated annual tax
- June 15: 40 percent
- September 15: nothing due
- January 15 of the following year: 30 percent
By June, you have already paid 70 percent of your California liability. Keep the confirmation number from every payment; it is your proof when you file.
Safe Harbor Rules
Both agencies waive underpayment penalties if you hit certain safe-harbor amounts. Federally, you need to pay at least the lesser of 90 percent of your current-year tax or 100 percent of your prior-year tax. If your prior-year AGI exceeded $150,000 ($75,000 if married filing separately), the prior-year threshold rises to 110 percent.11Internal Revenue Service. Underpayment of Estimated Tax by Individuals Penalty
California mirrors this structure at the $150,000 mark, but adds a stricter twist. Once your current-year California AGI hits $1 million or more ($500,000 for married filing separately), the prior-year safe harbor disappears entirely. You must base your payments on at least 90 percent of your current-year tax.10Franchise Tax Board. Estimated Tax Payments High-earning Californians whose income jumps in a given year get caught by this rule regularly.
What It Costs to Fall Behind
Miss a quarterly payment or file late and both agencies charge you. The IRS interest rate on underpayments is 7 percent per year, compounded daily, as of early 2026, plus a quarterly underpayment penalty on the shortfall.12Internal Revenue Service. Interest Rates Remain the Same for the First Quarter of 2026
California layers its own on top. A late-filed return runs 5 percent of the tax due per month or partial month, up to 25 percent, with a $135 minimum if you are more than 60 days late. Late payment is 5 percent of the unpaid balance plus 0.5 percent per month it stays unpaid, again capped at 25 percent combined.13Franchise Tax Board. FTB 1024 Penalty Reference Chart Interest on California underpayments is 7 percent through June 30, 2026, and the estimated-tax penalty rate is 4 percent.14Franchise Tax Board. Interest and Estimate Penalty Rates
The Forms
Start with Schedule C (Form 1040) to report gross business income and deductible expenses and land on net profit.15Internal Revenue Service. About Schedule C (Form 1040), Profit or Loss From Business (Sole Proprietorship) That number goes to Schedule SE, which computes your self-employment tax and the deductible half.16Internal Revenue Service. About Schedule SE (Form 1040), Self-Employment Tax
For California, file Form 540. Finish the federal return first so you can bring your federal AGI over as the starting point, then use Schedule CA (540) for any California-specific adjustments, including the AB 5 add-back if it applies to you.17Franchise Tax Board. 2025 Instructions for Form 540 California Resident Income Tax Return
One boundary worth noting: if you run your business as a California LLC rather than a sole proprietorship, you also owe an annual $800 franchise tax and, above $250,000 in California gross receipts, an additional LLC fee.18Franchise Tax Board. Limited Liability Company Those are entity-level charges separate from the self-employment tax and income tax numbers above.