When you worked a salaried job, your employer split your FICA taxes with you. You paid 7.65% of your paycheck toward Social Security and Medicare. Your employer quietly paid another 7.65% on your behalf — a cost you never saw on your pay stub.
The moment you go freelance, that arrangement ends. You now pay both sides: 7.65% (employee) + 7.65% (employer) = 15.3% total. That's self-employment tax. And it's the first thing most new freelancers don't account for when they set their rates.
Breaking down the 15.3%
Self-employment tax has two components:
- Social Security tax: 12.4% on net self-employment earnings, up to the annual wage base ($176,100 in 2026)
- Medicare tax: 2.9% on all net self-employment earnings, with no income ceiling
High earners also pay an Additional Medicare Tax of 0.9% on earnings above $200,000 (single filer), but that's separate from SE tax.
The 92.35% rule: why SE tax isn't exactly 15.3%
The IRS applies SE tax to 92.35% of your net self-employment income, not 100%. This mirrors the employer-side calculation — employers pay payroll tax on gross wages before the employee deduction.
SE tax base: $80,000 × 92.35% = $73,880
SE tax: $73,880 × 15.3% = $11,304
Effective rate on net income: ~14.1%
This is why you'll sometimes see SE tax described as "~14.1% of net income" — because the 92.35% adjustment brings the effective rate down from the nominal 15.3%.
The two deductions that reduce the pain
SE tax stings, but two deductions soften the blow significantly.
1. The SE tax deduction (50% of SE tax)
You can deduct half of your SE tax from your gross income when calculating your federal income tax. This mimics the employer deduction — companies deduct their half of payroll tax as a business expense.
On $80,000 net income, this deduction is roughly $5,652, which meaningfully reduces your federal income tax burden.
2. The Qualified Business Income (QBI) deduction
Most freelancers also qualify for the QBI deduction (Section 199A), which lets you deduct up to 20% of qualified business income. Combined with the SE tax deduction, this can significantly reduce your taxable income.
Our calculator applies both deductions automatically. Many online calculators ignore QBI entirely.
How SE tax affects your hourly rate
Here's the critical insight: SE tax is paid on net profit, not gross revenue. The more you earn, the more SE tax you owe. This means you can't just add 15.3% to your target income and call it done — you need to solve for gross revenue iteratively.
That's exactly what our freelance rate calculator does: it uses a binary search algorithm to find the exact gross revenue needed so that, after SE tax, federal income tax, and expenses, you net your target income.
Quarterly estimated taxes
Unlike salaried employees, freelancers don't have withholding. You're expected to pay your SE tax and income tax quarterly:
- April 15 — Q1 payment
- June 16 — Q2 payment
- September 15 — Q3 payment
- January 15 — Q4 payment
Missing quarterly payments triggers underpayment penalties. A common rule of thumb: set aside 25–30% of every payment you receive in a separate savings account. When quarterly deadlines hit, the money is already waiting.
Strategies to minimize SE tax (legally)
- Maximize deductible expenses. SE tax is on net profit. Every legitimate business deduction reduces your net profit and therefore your SE tax base.
- Self-employed health insurance deduction. If you pay for your own health insurance, premiums are 100% deductible from gross income.
- SEP-IRA or Solo 401(k). Retirement contributions reduce taxable income but don't reduce SE tax itself. Still worth doing for the income tax savings.
- S-Corp election (at higher incomes). At roughly $60,000+ in net profit, electing S-Corp status can reduce SE tax by paying yourself a "reasonable salary" and taking remaining profit as a distribution. Consult a CPA before doing this.