How US self-employment tax is calculated
Self-employed people in the US pay both the employee and employer shares of Social Security and Medicare, 15.3% in total, on 92.35% of net self-employment earnings. Half of the SE tax is deductible when calculating income tax.
Formula
SE earnings = Net profit x 92.35% SE tax = SE earnings x 12.4% (Social Security, up to the annual wage base) + SE earnings x 2.9% (Medicare) Income-tax deduction = SE tax / 2
Example
Net profit $50,000: SE earnings $46,175, SE tax about $7,065 (15.3%). About $3,532 is deductible when calculating income tax.
Frequently asked questions
What is the self-employment tax rate?
15.3%: 12.4% Social Security plus 2.9% Medicare, applied to 92.35% of net earnings. Social Security applies only up to the annual wage base; an additional 0.9% Medicare tax applies above $200,000 for single filers.
Do I need to pay quarterly estimated taxes?
Generally yes, if you expect to owe $1,000 or more for the year. Payments are due in April, June, September and January.
How much should I set aside for taxes as a freelancer?
A common rule of thumb is 25-30% of net profit to cover SE tax and federal income tax, plus state tax where applicable.