The earnings of self-employed individuals are called net earnings from self-employment (NESE) and self-employment income (SEI). Entitlement is based on SEI and deductions are based on NESE.

The Omnibus Budget Reconciliation Act (OBRA) of 1989, P.L. 98-21, added sections 164(f) and 1402(a)(12) of the Internal Revenue Code and section 211(a)(11) of the Social Security Act to provide for a new deduction of 7.65% (100% - 7.65% = 92.35% or 0.9235) when computing NESE. This is a mandatory deduction effective with taxable years beginning after 12/31/89.