The first time you file as a freelancer, the tax bill can be a shock. On top of regular income tax, the self-employed owe self-employment (SE) tax — and it catches a lot of new contractors off guard.
Why it exists
When you're a W-2 employee, your employer quietly pays half of your FICA taxes — 6.2% Social Security and 1.45% Medicare — and you pay the other half. When you work for yourself, you are both the employer and the employee, so you pay both halves: 15.3% total (12.4% Social Security + 2.9% Medicare).
What it applies to
SE tax is calculated on 92.35% of your net business income (gross income minus business expenses), not the full amount. The Social Security portion only applies up to the annual wage base; the Medicare portion has no cap, and high earners pay an extra 0.9% above a threshold.
The deductions that soften it
- Half of SE tax is deductiblefrom your income before income tax is figured — it doesn't reduce the SE tax itself, but it lowers your income-tax bill.
- Business expenses reduce net income directly, so good bookkeeping pays off.
- The QBI deduction can cut up to 20% of qualified business income from your taxable income.
- Retirement plans (SEP-IRA, Solo 401k) shelter more income than a regular IRA.
Quarterly estimated payments
There's no employer withholding tax for you, so the IRS expects quarterly estimated payments. Setting aside roughly 25–30% of net income is a common starting point, but your real rate depends on your bracket and state.
Estimate yours
The self-employment tax calculator estimates your SE tax, income tax, take-home, and quarterly set-aside from your net business income and state. Tracking expenses across the year is what makes that number smaller — accounting tools like QuickBooks automate it.