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Freelance finance guide

Self-employment tax explained: the 15.3% freelancers forget about

Updated July 2026 · ~7 min read

A W-2 employee never sees Social Security and Medicare tax as a separate number — their employer pays half and quietly withholds the rest. As a freelancer, you're both the employee AND the employer, so you owe the whole thing yourself: an extra 15.3% on top of your regular income tax. Here's exactly how it's calculated, and why it's not just "your tax bracket."

Quick summary: Self-employment (SE) tax is 15.3% of 92.35% of your net profit (12.4% Social Security + 2.9% Medicare). It's separate from — and stacks on top of — your regular federal income tax bracket. Half of what you pay in SE tax is itself deducted before your income tax is calculated.

Why freelancers pay this and employees don't

Every paycheck, a W-2 employee has 7.65% withheld for Social Security and Medicare (called FICA), and their employer quietly matches the other 7.65% — 15.3% total, split two ways so it barely feels like anything. When you're self-employed, there's no employer half to hide it. The IRS still wants the full 15.3%, and now it's all coming out of your pocket, usually with your quarterly estimated payment rather than a paycheck deduction.

This is why a freelancer earning the same gross income as a W-2 employee takes home noticeably less — not because your tax bracket is higher, but because you're paying both sides of a tax the employee never sees broken out.

The math: how SE tax is actually calculated

SE tax isn't 15.3% of your gross revenue. It's calculated in two adjustment steps first:

Step 1

Start with net profit — your income minus deductible business expenses. This is the number on your Schedule C, not your gross invoiced total.

Step 2

Multiply by 92.35%. The IRS lets you exclude 7.65% of your net profit before applying the SE tax rate — a built-in adjustment that roughly mirrors how a W-2 employee's FICA is calculated on their gross pay, not an amount already reduced by the employer's matching share.

Step 3

Multiply that by 15.3% (12.4% Social Security + 2.9% Medicare) to get your total SE tax owed.

Worked example: $60,000 net profit for the year.

StepCalculationResult
Net profit—$60,000
× 92.35%$60,000 × 0.9235$55,410
× 15.3% (SE tax rate)$55,410 × 0.153≈ $8,478

That's roughly 14.1% of the original $60,000 — not the full 15.3%, because of the 92.35% adjustment in step 2.

The Social Security cap: the 12.4% Social Security portion only applies up to an annual wage base (adjusted yearly by the IRS — historically well above what most solo freelancers net). Above that threshold, only the 2.9% Medicare portion continues to apply, uncapped. Most freelancers never hit the cap, but if you're netting six figures consistently, it's worth checking the current-year threshold on IRS.gov.

The deduction that softens the blow

Here's the part most freelancers miss: you get to deduct half of your SE tax from the income that your regular federal income tax is calculated on. In the example above, that's roughly $4,239 (half of $8,478) subtracted before your income tax bracket is applied.

Why? Because that half roughly represents the "employer share" a business would normally get to deduct as a payroll expense — the IRS extends the same treatment to self-employed people, just applied as an income adjustment instead of a business deduction.

How SE tax stacks with your federal income tax bracket

SE tax and federal income tax are two completely separate calculations that both apply to your freelance profit:

  1. SE tax — flat 15.3% (on 92.35% of profit), regardless of your bracket.
  2. Federal income tax — progressive brackets (10%, 12%, 22%, 24%...) applied to your taxable income: profit, minus half your SE tax, minus your standard (or itemized) deduction.

Add the two together and divide by your total profit, and you get your true effective tax rate — almost always higher than your income-tax bracket alone, because SE tax stacks on top of it. This is why the common "set aside 25–30%" rule of thumb exists: it's a rough blend of both taxes, not just one bracket. But it's still a guess — the real number depends on your actual income level, since federal brackets are progressive and SE tax isn't.

Even Wage now calculates this for you

The Tax Center tab breaks down exactly this — SE tax, your bracket-adjusted federal estimate, and the blended effective rate — then uses that real number (not a flat guess) to set aside the right amount on every payment. Works in Excel, Google Sheets & Numbers.

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Why this matters more the more you earn

Because SE tax is a flat percentage while federal income tax is progressive, your effective combined rate climbs steadily as your profit grows — there's no single "right" set-aside percentage that works at every income level. A freelancer netting $30,000 and one netting $150,000 should not be reserving the same percentage; the second freelancer's blended rate is meaningfully higher once their income tax bracket climbs on top of the same flat SE tax. Guessing a flat number, instead of computing it at your actual income, means either overpaying yourself now and scrambling in April, or under-spending unnecessarily on a false sense of caution.

For the practical side of turning this number into a habit — reserving it on every payment instead of at year-end — see our guide on how much freelancers should save for taxes. For the payment deadlines themselves, see quarterly estimated taxes explained.

This article is general educational information for U.S. freelancers, not tax or legal advice. Figures use 2025 IRS brackets as a 2026 estimate, single-filer status, and the standard deduction — your actual liability depends on your filing status, state taxes, and other factors. Verify current thresholds on IRS.gov or with a qualified tax professional before acting.