What Is Self-Employment Tax and How Much Will You Owe?

Self-employment tax is the Social Security and Medicare tax that freelancers pay on their net business income. When you have a regular job, your employer covers half of these taxes and withholds the other half from your paycheck. When you freelance, you are both the employer and the employee, so you pay both halves yourself. That adds up to 15.3% of net self-employment earnings, on top of whatever income tax you owe.

The exact rate and what it covers

Self-employment tax breaks down into two pieces:

• Social Security: 12.4% on net self-employment income up to 176,100 dollars for 2025 (this wage base adjusts each year).
• Medicare: 2.9% on all net self-employment income with no cap.

That is the 15.3% total. Once your net self-employment income exceeds 200,000 dollars (250,000 dollars if married filing jointly), you also owe an additional 0.9% Medicare surtax. That does not apply to most freelancers in their first several years, but it is worth knowing.

Net self-employment income means your gross freelance earnings minus your deductible business expenses. If you brought in 80,000 dollars and had 12,000 dollars in legitimate business expenses, your net is 68,000 dollars, and you owe 15.3% on 92.35% of that (more on the 92.35% in a moment).

Why it is calculated on 92.35%, not 100%

The IRS lets you deduct half of your self-employment tax before calculating the tax itself. This mirrors how W-2 employees work: they do not pay income tax on the employer's portion of FICA. The math comes out to 92.35%, which is where that number comes from on Schedule SE.

Using the example above: 68,000 dollars net self-employment income multiplied by 0.9235 equals about 62,798 dollars. Self-employment tax is 15.3% of that, so roughly 9,608 dollars.

You then deduct half of that self-employment tax (about 4,804 dollars) when calculating your adjusted gross income. This is an above-the-line deduction, meaning you get it whether or not you itemize. So the real tax on that 68,000 dollars net is 9,608 dollars of SE tax plus income tax on a reduced AGI. Both taxes together is why many freelancers end up in a higher effective rate than they expect when coming from W-2 work.

A real dollar example

Suppose you are single, take the standard deduction, and earn 60,000 dollars net self-employment income in 2025 with no other income.

• SE income for SE tax purposes: 60,000 dollars times 92.35% equals 55,410 dollars
• SE tax: 55,410 times 15.3% equals about 8,478 dollars
• Deductible half of SE tax: about 4,239 dollars
• Adjusted gross income: 60,000 minus 4,239 equals 55,761 dollars
• Standard deduction (2025): 15,000 dollars
• Taxable income: 55,761 minus 15,000 equals 40,761 dollars
• Federal income tax on 40,761 dollars (2025 brackets, single): roughly 4,714 dollars
• Total federal tax: 8,478 plus 4,714 equals about 13,192 dollars on 60,000 dollars of net income

That is an effective total rate of about 22%. Not a pleasant surprise if you were expecting the income tax bracket alone. The SE tax doubles the sting because it hits on top of income tax.

Business expenses that reduce what you owe

SE tax is calculated on net income, so every legitimate business deduction reduces both your income tax and your self-employment tax. A 1,000 dollar business expense does not just save you income tax dollars, it also saves you 15.3% of that amount in SE tax (on the 92.35% base), which is roughly 141 dollars on top of the income tax savings. Business deductions are worth more for self-employed people than for W-2 employees for exactly this reason.

Common deductions that reduce SE income:

• Home office (the space used regularly and exclusively for work)
• Software subscriptions used for your business
• Hardware and equipment
• Professional development, courses, books
• Health insurance premiums (there is a separate deduction for this that reduces income tax but not SE tax)
• A portion of cell phone costs
• Payment processing fees from Stripe, PayPal, etc.
• Accounting and legal fees

Good income tracking is what makes claiming these deductions painless. If you are already using WaffleInvoice to log every payment you receive, add a parallel habit of logging expenses in a spreadsheet or accounting app throughout the year. Reconstructing expenses in April is where deductions get missed.

Quarterly estimated payments

Self-employment tax is included in your quarterly estimated tax payments, not paid separately. When you calculate what to send each quarter, you are estimating income tax plus SE tax combined.

A simple rule for most freelancers: set aside 25 to 30% of every payment you receive. Move that amount to a separate savings account immediately. When the quarterly due date comes, calculate what you owe (or use last year's total tax divided by four as a safe-harbor estimate) and pay it. The money is already there.

The quarterly schedule runs approximately mid-April, mid-June, mid-September, and mid-January. Underpaying triggers a penalty, which is interest on the shortfall calculated per period. It is avoidable and not worth the hassle.

SE tax vs. income tax: knowing both

A question that comes up constantly is whether it makes sense to form an LLC or S-Corp to reduce SE tax. The short answer: an S-Corp structure can reduce SE tax at higher income levels, but not an LLC by itself (a single-member LLC is a disregarded entity and pays SE tax the same way a sole proprietor does).

An S-Corp saves SE tax by splitting income between a reasonable W-2 salary (on which you still pay the full 15.3% FICA) and an owner distribution (on which you do not pay SE tax). If you earn 120,000 dollars net, pay yourself a 70,000 dollar salary, and take a 50,000 dollar distribution, you pay FICA only on the 70,000 dollars rather than the full 120,000 dollars. At 15.3%, that saves you roughly 7,650 dollars in SE tax, minus the added cost of S-Corp administration, payroll, and accounting. The math usually starts to make sense somewhere in the 80,000 to 100,000 dollar net income range, and you should run it with an accountant.

For the question of whether forming an LLC makes sense for other reasons (liability protection, professionalism), see our post on whether freelancers need an LLC. The LLC decision and the SE tax decision are related but separate.

State taxes on self-employment income

Federal SE tax is the big one, but most states also tax self-employment income as ordinary income. A handful have no income tax at all (Florida, Texas, Nevada, and a few others). If you live in California, you also face a state Alternative Minimum Tax and the 1% Mental Health Services Tax on income over 1 million dollars. Check your state's rules, and factor state estimated taxes into your quarterly payments too.

The number to remember

For quick mental math: SE tax alone costs you about 14.1 cents on every dollar of net self-employment income (15.3% on 92.35%). Add your marginal income tax rate on top of that. A freelancer in the 22% federal income tax bracket is looking at roughly 14.1 plus around 18 to 22 cents per dollar in combined federal tax, depending on their exact situation. That is why a 30% set-aside is a reasonable starting point for most freelancers and not padding.

Tracking your income well is the foundation. If you know exactly what you have earned each quarter, the tax math is straightforward. WaffleInvoice is free to start and keeps a clean record of every payment so totaling your quarterly earnings takes a minute, not an afternoon.