What self-employment tax is
Employees split Social Security and Medicare with their employer: each pays half. When you work for yourself you are both, so you pay both halves through self-employment (SE) tax on Schedule SE. It is separate from, and in addition to, income tax.
How the calculation works
- Net earnings from self-employment = net profit × 92.35%. The reduction stands in for the employer-half deduction an employer would get. No SE tax is due if net earnings are under $400.
- Social Security part = 12.4% of net earnings, but only up to the Social Security wage base ($184,500) minus any W-2 wages you had.
- Medicare part = 2.9% of all net earnings, with no cap. Above the Additional Medicare Tax threshold, a further 0.9% applies (the threshold is reduced by your W-2 wages).
- Half-SE deduction: half of SE tax (excluding Additional Medicare Tax) is subtracted from income before income tax.
- Income tax: your profit, less the half-SE deduction, is added to any wages and taxed with the normal brackets after the standard deduction.
Worked example: $60,000 of profit
| Step | Amount |
|---|---|
| Net profit | $60,000 |
| Net earnings from self-employment | $55,410 |
| Social Security part | $6,870.84 |
| Medicare part | $1,606.89 |
| Self-employment tax | $8,477.73 |
| Half-SE deduction | $4,238.87 |
| Adjusted gross income | $55,761 |
| Federal income tax | $4,511.34 |
| Total federal tax | $12,989.07 |
| Each quarterly payment | $3,247.27 |
Compare an employee paid a $60,000 salary: they pay $4,590 of Social Security and Medicare and $5,020 of federal income tax — $9,610 in total, against $12,989 for the freelancer. The gap is mostly the employer half of FICA, which the freelancer pays themselves. Single filer, no state income tax, no QBI deduction.
If you also have a W-2 job
Social Security tax applies to combined wages and self-employment earnings only up to one annual wage base. If your job already pays wages up to that base, your business earnings owe only the Medicare part of SE tax. The calculator subtracts your W-2 wages from the wage base automatically. It assumes your employer’s withholding covers the income tax on your wages, so the quarterly estimate is only the extra tax the business creates.
Quarterly estimated payments
No employer withholds tax on self-employment income, so the IRS expects you to pay during the year with Form 1040-ES, generally in four installments. The calculator divides the federal tax caused by your business — SE tax plus the income tax increase — by four. Underpaying can trigger a penalty; you are generally protected if your payments and withholding cover 90% of this year’s tax or 100% of last year’s (110% for higher incomes) — see the IRS Form 1040-ES instructions. Raising W-2 withholding at a day job is another way to cover it.
Net profit: what to enter
Self-employment tax is figured on net profit — gross receipts minus ordinary and necessary business expenses (Schedule C, line 31). Common deductible expenses include supplies and software, a home office used regularly and exclusively for business, business mileage or vehicle costs, professional fees, advertising and the business share of phone and internet. Every dollar of legitimate expense lowers both SE tax and income tax, so good records matter more for freelancers than for employees.
Quarterly due dates
| Payment | Covers income earned | Usually due |
|---|---|---|
| 1 | January – March | April 15 |
| 2 | April – May | June 15 |
| 3 | June – August | September 15 |
| 4 | September – December | January 15 of the next year |
Dates move to the next business day when they fall on a weekend or holiday. Most states with an income tax have their own estimated-payment schedule.
What this calculator leaves out
- The qualified business income (QBI) deduction — enter your own figure under “Other deductions.”
- Self-employed health insurance and retirement plan (SEP, solo 401(k)) deductions — enter them as other deductions for an income tax estimate.
- Credits other than the Child Tax Credit, and state rules for business income beyond the state’s normal brackets.
Self-employed taxes have more moving parts than wages; a tax professional can confirm your quarterly payments, especially in your first profitable year.