Self-Employment Tax: How Much Will You Owe?
Self-employment tax is the Social Security and Medicare tax that freelancers, contractors, and small business owners pay on their net earnings. The rate is 15.3% — and it's separate from income tax. When you work for an employer, they split this with you; when you work for yourself, you cover both halves. The good news: you get to deduct half of it, and planning ahead keeps it from becoming a shock.
What self-employment tax is
If you're an employee, you see Social Security and Medicare taken out of every paycheck — often labeled FICA. What you might not realize is that your employer pays a matching amount behind the scenes. Together that funds your future Social Security benefits and Medicare.
When you're self-employed, there's no employer to pay the other half. So you pay both the employee and employer portions yourself. That combined amount is "self-employment tax," and it's why your tax bill as a freelancer can feel bigger than expected even at the same income. It applies on top of regular federal income tax, not instead of it.
The 15.3% breakdown
The 15.3% rate splits into two parts:
| Component | Rate | Applies to |
|---|---|---|
| Social Security | 12.4% | Net earnings up to an annual wage base limit (which the IRS adjusts each year) |
| Medicare | 2.9% | All net earnings, with no upper cap |
| Combined | 15.3% | Your net self-employment earnings |
A couple of nuances: the Social Security portion only applies up to a yearly earnings cap, so very high earners stop paying the 12.4% above that threshold. Medicare has no cap, and higher earners may owe an Additional Medicare Tax above certain income levels. Because these thresholds change yearly, check current IRS figures for the exact wage base and limits when you file.
You don't pay 15.3% on your full revenue
This is the part that trips people up — and it works in your favor. Self-employment tax is calculated on your net earnings (revenue minus business expenses), and even then only on about 92.35% of that net figure. On top of that, you can deduct half of your self-employment tax when figuring your income tax.
So the effective hit is softer than a flat 15.3% on everything you bring in. Tracking legitimate business expenses — software, equipment, mileage, a home office — directly lowers the net number the tax is based on. To estimate your bill, our self-employment tax calculator walks through these steps for you.
The "employer half" deduction
Because you're paying both halves, the IRS lets you deduct the employer-equivalent portion — roughly half of your self-employment tax — as an adjustment to income. This deduction reduces your taxable income for the income tax calculation (it doesn't reduce the self-employment tax itself).
It's an "above-the-line" deduction, meaning you get it even if you don't itemize. It doesn't erase the cost, but it meaningfully cushions the blow and is one reason the real burden is lower than the sticker rate suggests.
Worth noting: this deduction exists to put self-employed people on roughly equal footing with employees. An employee never pays income tax on the employer's share of payroll tax, because the employer pays it directly. By letting you deduct the employer-equivalent half, the tax code mirrors that treatment for the self-employed. It's a fairness adjustment, not a loophole — and it's automatic when you complete the right schedule, so you don't need to do anything special to claim it beyond filing correctly.
Quarterly estimated taxes
Employees have taxes withheld automatically. Self-employed people generally don't — so the IRS expects you to pay as you earn through quarterly estimated tax payments. These cover both your income tax and your self-employment tax, and they're typically due in April, June, September, and January.
Skip them and you can owe an underpayment penalty, even if you pay the full balance at tax time. The simplest approach for many freelancers:
- Estimate your total tax for the year (income tax plus self-employment tax).
- Divide by four and pay each quarter.
- Keep records so you can adjust if your income changes mid-year.
A common safe-harbor strategy is to base payments on last year's total tax to avoid penalties, then true up when you file. Confirm current safe-harbor rules with the IRS, since the thresholds can change.
How much should you set aside?
A practical rule of thumb is to set aside roughly 25% to 30% of your net self-employment income for taxes — that covers self-employment tax plus a typical band of federal income tax. Higher earners or those in high-tax states may want to reserve more.
| Net self-employment income | Set aside 25% | Set aside 30% |
|---|---|---|
| $40,000 | $10,000 | $12,000 |
| $75,000 | $18,750 | $22,500 |
| $100,000 | $25,000 | $30,000 |
The easiest way to stay ahead is to move that percentage into a separate savings account every time you get paid. Then quarterly payments come from money you've already parked aside, instead of cash you've mentally spent. If you also want to estimate your overall federal income tax, the income tax calculator can help you sanity-check the total.
The bottom line
Self-employment tax is 15.3% for Social Security and Medicare, charged on your net earnings, and it's the price of being your own boss without an employer to share it. But you're only taxed on net profit, you deduct half of it, and disciplined quarterly payments plus a 25% to 30% set-aside keep it manageable. Plan for it from your first invoice and it stops being a surprise.
This article is general information, not financial advice, and figures are estimates. Rules and rates change — confirm current details for your situation. See our disclaimer.