Do wages I earn elsewhere reduce the Self Employment Tax paid on my sole proprietorship business earnings?

Yes, your wages from other employment do affect your self-employment tax on your sole proprietorship earnings. Here’s how it works:

The Social Security Tax Cap:

• • The Social Security portion of the self-employment tax has a cap on the amount of income that is subject to it. In 2025, this cap is $160,200.
  • If you are also working as an employee elsewhere and earning wages, the Social Security taxes you pay through your job (via payroll deductions) will count towards the $160,200 cap.
  • Note – If you earn wages from an employer that exceed $160,200, you won’t pay additional Social Security tax on your sole proprietorship income that exceeds that cap. However, you will still pay the Medicare tax (which has no income limit) on all your earnings, including your self-employment income.

The Medicare Tax:

• • The Medicare tax is not subject to any income cap. So, regardless of how much you earn through wages or self-employment, you will pay the 2.9% Medicare tax on your total combined income (from both employment and self-employment).
  • If your total combined income exceeds $200,000 for single filers (or $250,000 for married couples), the Additional Medicare Tax of 0.9% will apply to the income above that threshold.

Quick Summary

Social Security Tax: You pay on the lesser of your self-employment income or the remaining portion of the $160,200 limit, based on the amount of wages you’ve already earned through your job.

Medicare Tax: You pay on all your income (both from your job and sole proprietorship) with no cap.

Additional Medicare Tax: Applies if your combined income exceeds $200,000 (single) or $250,000 (married).