Freelancer guides
Self-Employment Tax in the US — What You Actually Owe
The 15.3% self-employment tax, the deduction for half of it, and the quarterly estimated payments that trip up new freelancers.
By Praveen · 5 min read · Updated August 2026
The tax that surprises new freelancers
The first US tax bill as a freelancer is often a shock — not because income tax is higher, but because of a line employees never see in full: self-employment tax. As an employee, you and your employer split Social Security and Medicare. On your own, you pay both halves — 15.3% — on top of income tax. Nobody withholds it for you, which is how people end up owing thousands they never set aside.
The good news is that the system has built-in softeners and the rules are learnable. This guide explains exactly what you owe, the deductions that reduce it, and the quarterly estimated payments that keep you out of penalty territory.
Why freelancers pay more FICA
When you're an employee, you and your employer split Social Security and Medicare taxes — you pay 7.65%, they pay 7.65%. When you're self-employed, you are both, so you pay the full 15.3% yourself. That's self-employment tax, and it's on top of income tax.
It applies to net self-employment earnings (profit), and the Social Security portion only applies up to the annual wage base, while Medicare applies to all of it.
The deductions that soften it
Two things reduce the sting. First, you only pay self-employment tax on 92.35% of net profit, not the full amount. Second, you can deduct half of your self-employment tax when calculating your income tax — recognising the 'employer half' you effectively paid.
On top of that, ordinary business expenses reduce your profit before any tax applies, which is the single biggest lever freelancers have to lower their bill legitimately.
Quarterly estimated taxes
Because no employer withholds tax for you, the IRS expects you to pay as you go via quarterly estimated payments (roughly April, June, September and January). Skip them and you can face an underpayment penalty even if you pay in full at year-end.
A common rule of thumb is to set aside 25–30% of profit for federal taxes, more if your state taxes income too.
Don't forget state tax
Most states tax self-employment income just like wages, so factor your state in. A freelancer in Texas (no state income tax) keeps more than one in California on the same profit.
Our US freelancer calculator gives a simplified estimate combining self-employment tax and federal income tax — confirm specifics with a CPA.
Quarterly estimated payments, and the safe-harbour rule
US tax is pay-as-you-go. Employees satisfy that through withholding; the self-employed satisfy it through quarterly estimated payments, due in April, June, September and the following January. Skipping them and settling at filing triggers an underpayment penalty even if you pay the full amount eventually.
The safe harbour is the practical protection. Pay at least 90% of the current year's liability, or 100% of last year's total tax — 110% if your prior-year adjusted gross income was above a threshold — and the penalty does not apply regardless of how the year actually turns out. For a freelancer with volatile income, basing payments on last year's known figure is far simpler and safer than forecasting a year that has not happened yet.
The deductions that change the arithmetic most
Two structural deductions soften self-employment tax. Half of the self-employment tax itself is deductible against income tax, which partially offsets paying both halves of FICA. And the qualified business income deduction can remove a further slice of pass-through business income, subject to income thresholds and, above them, limits tied to the type of business and to wages paid.
The self-employed health insurance deduction is the one people leave on the table. Premiums for yourself, your spouse and your dependants are deductible above the line — reducing adjusted gross income rather than requiring you to itemise — provided you were not eligible for an employer plan through a spouse. On a marketplace policy for a family, that is frequently the single largest deduction on the return.
Sole proprietor, LLC, S-corp: what actually changes
A single-member LLC is a liability shield, not a tax structure. By default it is disregarded for federal tax and you file the same Schedule C and pay the same self-employment tax as a sole proprietor. Forming one changes your legal exposure and, in some states, your fees — it does not by itself reduce your tax.
The S-corporation election is where the tax picture changes. The owner takes a reasonable salary subject to payroll taxes and can take remaining profit as a distribution not subject to self-employment tax. The savings are real above a certain profit level, but so are the costs: payroll processing, a separate business return, state-level fees, and the requirement that the salary be genuinely reasonable — an artificially low one is a well-known audit trigger. Below roughly the point where the payroll-tax saving covers those costs, it is not worth doing, and the crossover is worth modelling with an accountant rather than guessing.
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Frequently Asked Questions
+How much is self-employment tax in the US?
15.3% of net self-employment earnings (12.4% Social Security up to the wage base, 2.9% Medicare on all of it), on top of income tax. You pay it on 92.35% of profit and can deduct half against income tax.
+Do freelancers pay quarterly taxes?
Yes. With no employer withholding, the IRS expects quarterly estimated payments. Setting aside 25–30% of profit (more with state tax) is a common rule of thumb to avoid a year-end shortfall and penalties.
+Do I have to pay quarterly estimated taxes?
If you expect to owe $1,000 or more when you file, generally yes. Paying at least 100% of last year's total tax — 110% above a higher income threshold — puts you inside the safe harbour and protects you from an underpayment penalty even if this year turns out much better than expected.
+Does forming an LLC reduce my self-employment tax?
No, not by itself. A single-member LLC is disregarded for federal tax purposes by default, so you file the same Schedule C and owe the same self-employment tax. The tax picture changes only if you elect S-corporation treatment, which brings its own payroll and filing costs and only pays off above a certain profit level.
Estimate only — not tax advice. Figures are estimates based on publicly available tax rules and may not reflect your full circumstances. See our methodology & sources (last reviewed June 2026). Always confirm with an official tax authority or a licensed adviser before making decisions.