How self-employment tax works
Employees split Social Security and Medicare with their employer. When you work for yourself you pay both halves, as self-employment tax, on top of income tax.
Self-employment tax = 15.3% × (net profit × 92.35%)
- 12.4% is Social Security, on earnings up to $184,500 in 2026 (less any W-2 wages), and 2.9% is Medicare with no cap.
- An extra 0.9% Medicare tax applies above $200,000 of earnings ($250,000 married filing jointly).
- Half of the self-employment tax is deducted from your income before income tax is worked out.
- Most sole proprietors also get the qualified business income (QBI) deduction: 20% of business income, as long as taxable income stays under $201,750 ($403,500 married filing jointly).
Worked example
You're single with $80,000 of freelance profit. Self-employment tax is 15.3% of $73,880: $11,304. Half of it, $5,652, comes off your income, then the $16,100 standard deduction and a $11,650 QBI deduction leave $46,599 taxable, for $5,344 of income tax.
That's $16,647 in all, about 21% of your profit, or $4,162 per quarterly payment.
Things to know
- Pay as you go. The IRS expects tax through the year. Paying at least the smaller of 90% of this year's tax or 100% of last year's (110% at higher incomes) generally avoids an underpayment penalty.
- State tax is extra. Most states also tax self-employment income; add your state rate on top.
- Track every expense. Business costs lower your profit, and with it both taxes. The Freelancer Tax Set-Aside Sheet tracks income, expenses and what to set aside from each payment.
- Price for it. The freelance rate calculator builds taxes into your hourly rate.
Questions people ask
Do I have to pay self-employment tax on a side hustle?
Yes, once your net earnings from self-employment reach $400 in a year, even if you also have a regular job.
How much should I set aside from each payment?
The percentage in the result above is a good guide for federal tax. Many freelancers move that share of every payment into a separate savings account the day it arrives.
Sources
- IRS: Topic 554, self-employment tax
- IRS: self-employment tax (Social Security and Medicare taxes)
- IRS: Form 1040-ES, estimated tax for individuals
- IRS: Rev. Proc. 2025-32 (2026 brackets, standard deduction, QBI thresholds)
- Social Security Administration: contribution and benefit base ($184,500 in 2026)
Reviewed September 28, 2026 by The Dollars World team. How we build and check our calculators · Our data and formulas. This is general information, not financial advice.