Several different obligations apply. Federal self-employment tax, federal income tax, and California income tax are three separate calculations. Sales tax, local licensing, and disability insurance (SDI) may or may not apply to you. This guide separates them and walks through the numbers for 2026.
Key Takeaways
- Self-employment tax applies to net profit, not gross revenue, so expense records matter.
- The federal rate is 15.3% on 92.35% of net earnings, with Social Security capped at $184,500.
- California income tax is separate, progressive, and does not allow the federal QBI deduction.
- Quarterly estimates follow different schedules federally (25% each) and in California (30/40/0/30).
- SDI, sales tax, and local licenses are separate obligations, and not everyone owes them.
Who Must Pay Self-Employment Tax in California?
The IRS treats sole proprietors, independent contractors, partners in a trade or business, and anyone otherwise in business for themselves as self-employed, including part-timers. Freelancers, consultants, and gig workers all qualify.
The $400 threshold
Generally, if your net self-employment earnings reach $400, you file Schedule SE to calculate the tax. A sole proprietor reports profit or loss on Schedule C. Earning less than $400 does not erase other filing requirements.
Entity type changes the mechanics:
- A single-member LLC is generally disregarded for federal income tax unless it elects corporate treatment.
- Partners report self-employment earnings through Schedule K-1 and Schedule SE, depending on partner status.
Employee or contractor? California decides
You cannot simply elect contractor status. Under Labor Code section 2775, the hiring business generally must prove all three parts of the ABC test:
- You are free from its control, in contract and in fact.
- Your work falls outside its usual course of business.
- You run an independently established business of the same kind.
Sections 2776 (business-to-business) and 2778 (certain professional services such as marketing, graphic design, and grant writing) offer conditional pathways. They apply only when every statutory condition is met.
An exemption from the ABC test does not by itself make you a contractor. If you are unsure, check the Department of Industrial Relations' independent contractor guidance.
California Self-Employment Tax Rates and Other Taxes for 2026
Federal self-employment tax
The regular rate is 15.3%: 12.4% Social Security plus 2.9% Medicare. It applies to 92.35% of net earnings, per Publication 505.
- Social Security applies up to $184,500 of combined wages and self-employment earnings.
- Medicare has no cap.
- An extra 0.9% Additional Medicare Tax applies above $200,000 (single), $250,000 (married filing jointly), or $125,000 (married filing separately).
- You deduct half of the self-employment tax when computing income. That reduces income tax, not the self-employment tax itself.
California income tax rates
California taxes income progressively, from 1% to 12.3%. The latest final bracket schedule is for tax year 2025, and FTB's 2026 estimated-tax instructions use that table for estimating. Treat these as working figures until final 2026 indexing appears.
| Rate | Single / MFS (up to) | Joint (up to) | Head of household (up to) |
|---|---|---|---|
| 1% | $11,079 | $22,158 | $22,173 |
| 2% | $26,264 | $52,528 | $52,530 |
| 4% | $41,452 | $82,904 | $67,716 |
| 6% | $57,542 | $115,084 | $83,805 |
| 8% | $72,724 | $145,448 | $98,990 |
| 9.3% | $371,479 | $742,958 | $505,208 |
| 10.3% | $445,771 | $891,542 | $606,251 |
| 11.3% | $742,953 | $1,485,906 | $1,010,417 |
| 12.3% | Above | Above | Above |
An extra 1% Behavioral Health Services Tax applies to taxable income over $1 million.
How California taxable income differs
You start with federal adjusted gross income, then Schedule CA (540) adjusts for differences. California does not allow the federal QBI deduction.
Some adjustments, such as the self-employed health insurance deduction, may be required if you are an employee under California law despite federal contractor treatment.
Other California and local obligations
Not everyone owes these:
- Sales and use tax: applies to retail sales of tangible goods. A seller's permit from CDTFA covers this and is not a city business license.
- Local business taxes: set by your city or county.
- Payroll taxes: apply once you hire employees.
- SDI: 1.3% on covered wages in 2026 with no wage ceiling (EDD rates). Separate from the 15.3% federal rate; self-employed people are not automatically covered (see SDI below).
How to Calculate California Self-Employment Tax
Gather your numbers first
Before estimating, collect:
- Gross receipts and deductible expenses (the difference is net profit)
- Filing status and other household income
- Any W-2 wages
- Estimated payments already made
Always state whether a figure is revenue or profit. A freelancer billing $100,000 with $30,000 of expenses owes self-employment tax on $70,000, not $100,000.
The federal sequence
Publication 505's Worksheet 2-3 works like this:
- Start with expected net business profit.
- Multiply by 92.35%. If the result is under $400, stop.
- Compute Medicare at 2.9%.
- Subtract any W-2 Social Security wages from $184,500.
- Apply 12.4% to the smaller of your adjusted earnings or that remaining base.
- Add the two parts, then take 50% as your income deduction.
W-2 wages and self-employment earnings share one Social Security base. Use the IRS worksheet rather than a flat-rate shortcut.
Worked example: $100,000 of net profit
Assumptions: single filer, California resident, $100,000 of net profit (not gross revenue), no W-2 wages, no other income, standard deductions, no credits, no other adjustments. California figures use the 2025 table and $5,706 standard deduction as estimates.
| Step | Amount |
|---|---|
| Net earnings (× 92.35%) | $92,350 |
| Self-employment tax (× 15.3%) | $14,130 |
| Half deduction | $7,065 |
| Federal AGI | $92,935 |
| Federal taxable income (after $16,100 standard deduction and ~$15,367 QBI deduction) | $61,468 |
| Federal income tax | ~$8,235 |
| California taxable income ($92,935 − $5,706) | $87,229 |
| California income tax | ~$4,551 |
The QBI deduction here is limited to 20% of taxable income before the deduction. Combined, the total is roughly $26,900, or about 27% of net profit. Your own result will differ with expenses, retirement contributions, credits, and other income.
Marginal versus effective rates
A bracket rate applies only to the slice of income inside it. Moving into the 22% federal bracket does not tax all your income at 22%. Never add the top federal and California rates to estimate your bill. Divide total tax by your income to see your effective rate, and say which income figure you used.
How to File and Pay California Self-Employment Taxes
Required forms
| Form | Purpose |
|---|---|
| Form 1040 | Federal individual return |
| Schedule C | Sole-proprietor profit or loss |
| Schedule SE | Self-employment tax |
| Schedule 1 | Adjustments, including half of SE tax |
| Form 1040-ES | Federal estimated tax |
| Form 540 | California resident return |
| Schedule CA (540) | Federal-to-California adjustments |
| Form 540-ES | California estimated tax |
Partnerships, corporations, foreign income, and sales tax trigger additional forms, such as Form 1065 for partnerships and Form 1120 for C corporations.
Quarterly estimated payments
- Federal: generally required when you expect to owe $1,000 or more after withholding and credits
- California: generally required when you expect to owe $500 or more ($250 if married filing separately)
| Installment | Due date | Federal share | California share |
|---|---|---|---|
| First | April 15, 2026 | 25% | 30% |
| Second | June 15, 2026 | 25% | 40% |
| Third | September 15, 2026 | 25% | 0% |
| Fourth | January 15, 2027 | 25% | 30% |
California skips the third quarter entirely. Many freelancers get caught applying the same flat quarterly split to both agencies.
Safe harbors and extensions
To avoid underpayment penalties, pay the smaller of 90% of current-year tax or 100% of prior-year tax. The prior-year figure rises to 110% if prior-year AGI exceeded $150,000 ($75,000 married filing separately). In California, the prior-year safe harbor is unavailable at current-year AGI of $1 million or more.
An extension buys time to file, not to pay. Federal Form 4868 moves the filing date to October 15, 2026. California's six-month extension is automatic. Payment is still due April 15.
Records and professional help
Keep business and personal finances separate. Save:
- Invoices and payment-platform statements
- Receipts and bank records
- Mileage logs and proof of each quarterly payment
IRS Publication 463 expects mileage logs to show dates, destinations, and business purpose.
VJM Global supports US businesses and individual taxpayers with accounting, tax compliance, and financial reporting, including Form 1040 preparation. The firm also provides ongoing bookkeeping and cross-border accounting support. VJM Global does not have a California office.
Deductions, Records, Licenses, and California SDI
Common deductions
Deduct expenses that are ordinary and necessary for your business. Verify eligibility for each:
- Professional fees, software, advertising, and equipment
- Business mileage: 72.5 cents per mile January 1 to June 30, 2026, then 76 cents from July 1
- Home office: regular and exclusive use; the simplified method is $5 per square foot up to 300 square feet
- Self-employed health insurance (Form 7206), which does not reduce SE-taxable earnings
- Retirement: SEP limit of $72,000; Solo 401(k) deferral of $24,500, plus $8,000 catch-up at 50+ ($11,250 at ages 60-63)
Keep contemporaneous records for every claimed expense. California conforms to most but not all federal treatment. It disallows the qualified business income (QBI) deduction and has no equivalent to the federal small-employer retirement startup credit.
Business licenses and permits
These requirements are often confused:
- EIN: a free federal tax ID from the IRS. It is not a license.
- Seller's permit: from CDTFA, for selling taxable goods.
- Local business license: from your city or county.
- Professional license: from the relevant state board.
A sole proprietorship needs no Secretary of State formation filing, while an LLC does. Requirements vary by city, county, industry, premises, and employees. Use CalGold to identify permit agencies, then confirm with local government.
California SDI and elective coverage
State Disability Insurance is administered by the Employment Development Department (EDD). It is funded by employee withholding at 1.3% in 2026. Self-employed people generally are not covered automatically.
Self-employed workers can opt into Disability Insurance Elective Coverage (DIEC):
- Premium rate for 2026: 8.84%
- Minimum annual net profit: $4,600
- Minimum participation: two complete calendar years
- Benefits generally begin after six months of participation
DIEC covers non-work-related disability. It is not workers' compensation, federal self-employment tax, or California income tax.
Frequently Asked Questions
What taxes do self-employed individuals pay in California?
Federal self-employment tax, federal income tax, and California income tax. Depending on your work, you may also owe sales tax, local business taxes, or payroll taxes. SDI applies only if you elect coverage.
What is self-employment tax?
It funds Social Security and Medicare for people without an employer. The rate is 15.3% on 92.35% of net earnings, calculated separately from income tax.
What are the California state income tax rates for 2026?
Rates run from 1% to 12.3%, with a 1% surtax above $1 million. Your bracket depends on taxable income and filing status, not gross receipts. Check FTB's current tables.
How much would $100,000 of income be taxed in California?
It depends on whether that is revenue or profit, your expenses, filing status, and other income. In the example above, $100,000 of net profit for a single filer produced about $26,900 in combined federal and California tax.
Do I need a business license to be self-employed in California?
It depends on your city, county, profession, and activities. Licensing is separate from income tax filing. Use CalGold and your local government to confirm.
What is California SDI tax?
SDI is EDD-administered disability insurance funded by employee payroll withholding. It is not part of self-employment tax. Self-employed individuals can opt in through DIEC.
