Self-Employment Tax Explained: What Freelancers Need to Price In
Self-employment tax is the Social Security and Medicare tax paid by people who work for themselves; it matters because it replaces both sides of payroll tax that are split in a W-2 job.
What this page helps you do
- Define self-employment tax without mixing it up with income tax
- See why 15.3% is a starting point, not the whole tax bill
- Use a repeatable estimate before setting freelance rates
Reading time: about 7 minutes. Calculator results are estimates for planning, not tax, legal or payroll advice.
What Is Self-Employment Tax?
Self-employment tax is the Social Security and Medicare tax on net earnings from self-employment. It is separate from federal income tax, state income tax, and local tax.
For W-2 employees, payroll tax is split between worker and employer. For self-employed workers, that combined burden is generally handled through self-employment tax, subject to rules and thresholds.
Why Is Self-Employment Tax 15.3%?
The common 15.3% figure combines 12.4% Social Security tax and 2.9% Medicare tax. Social Security applies up to the wage base, while Medicare can continue and may include additional Medicare tax at higher incomes.
Self-employment tax is not a penalty for freelancing. It is the payroll-tax side of working for yourself, and it should be built into rates from the start.
Original 2026 Self-Employment Tax Model
In our 2026 self-employment model, we separated gross receipts, business expenses, and estimated self-employment tax:
| Annual invoices | Business expenses | Estimated net earnings | Approx. SE tax planning reserve |
|---|---|---|---|
| $40,000 | $4,000 | $36,000 | ~$5,086 |
| $80,000 | $8,000 | $72,000 | ~$10,172 |
| $120,000 | $15,000 | $105,000 | ~$14,833 |
The reserve is simplified and intended for planning. Actual returns may use deductible portions, credits, retirement contributions, and other adjustments.
How to Estimate Self-Employment Tax
Step 1: Estimate net earnings, not gross invoices
Start with revenue, then subtract ordinary and necessary business expenses. A $100,000 invoice year is not the same as $100,000 net self-employment income.
Step 2: Reserve for self-employment tax before income tax
Set aside money for SE tax and income tax. The exact amount depends on filing status, deductions, state tax, and estimated payments.
Step 3: Build tax reserve into your hourly rate
Use the Freelance Rate Calculator and compare the result with 1099 vs W-2 Take-Home Pay.
Self-Employment Tax FAQs
No. Self-employment tax covers Social Security and Medicare; income tax is a separate federal and possibly state tax on taxable income.
Not exactly. The 15.3% rate is a common headline rate, but taxable net earnings, wage base rules, deductions, and additional Medicare tax can change the final result.
Many freelancers start with a 25-35% total tax reserve for federal, self-employment, and state taxes, then refine it with a tax professional or actual quarterly estimates.