When you work for an employer, taxes are handled for you. FICA is withheld automatically. Your W-2 arrives in January and you file a straightforward return. When you are self-employed, none of that happens. You are responsible for calculating what you owe, setting it aside throughout the year, making four separate quarterly payments, and filing a more complex return — all while also running your business.
The IRS estimates that self-employed people underpay their taxes by more than $40 billion annually. Most of that is not fraud — it is confusion. This guide explains the US self-employment tax system clearly, from the basic rates to the deductions most freelancers miss.
As a self-employed person in the US, you pay two separate taxes on your net earnings:
This is the equivalent of FICA — Social Security and Medicare. Employees pay 7.65% and their employer pays a matching 7.65%. When you are self-employed, you pay both halves: 15.3% total on your first $168,600 of net earnings (2026 Social Security wage base), and 2.9% on anything above that (Medicare only, no cap). Above $200,000 net earnings you also owe an additional 0.9% Medicare surtax.
The good news: you can deduct half of your SE tax from your gross income when calculating your federal income tax. This reduces the effective burden somewhat.
Your net self-employment income (after the SE tax deduction and other deductions) is taxed at standard federal income tax rates. For 2026:
| Rate | Single Filer | Married Filing Jointly |
|---|---|---|
| 10% | Up to $11,925 | Up to $23,850 |
| 12% | $11,926 – $48,475 | $23,851 – $96,950 |
| 22% | $48,476 – $103,350 | $96,951 – $206,700 |
| 24% | $103,351 – $197,300 | $206,701 – $394,600 |
| 32% | $197,301 – $250,525 | $394,601 – $501,050 |
| 35% | $250,526 – $626,350 | $501,051 – $751,600 |
| 37% | Over $626,350 | Over $751,600 |
These are marginal rates — each bracket only applies to the income within that range, not all of your income.
Employed people have tax withheld from every paycheck. Self-employed people have no withholding, which means you must pay tax in advance through quarterly estimated payments. If you do not pay enough during the year, you owe a penalty on top of your tax bill at filing time.
The four quarterly due dates are:
Use IRS Form 1040-ES to calculate each payment. The safe harbour rule: if you pay at least 100% of last year's total tax liability (or 110% if your AGI was over $150,000), you will not owe an underpayment penalty regardless of what you actually owe at filing.
A simple rule of thumb: set aside 25–30% of every payment you receive into a dedicated savings account. Transfer the quarterly estimated payment from that account each time it is due.
Net self-employment income — not gross — is what you are taxed on. Every legitimate business deduction reduces both your income tax and your SE tax. Common deductions most freelancers are entitled to:
The QBI deduction, introduced by the Tax Cuts and Jobs Act, allows many self-employed individuals to deduct up to 20% of their qualified business income. This can be a significant saving. The rules are complex — there are income thresholds and restrictions for certain service businesses (law, finance, health, consulting) — but most freelancers earning under $197,300 (single) or $394,600 (married filing jointly) qualify for the full deduction without restrictions.
If your income is above those thresholds and you operate in a specified service trade, the deduction phases out and may be eliminated entirely. This is worth understanding in advance if your business is growing.
Federal tax is not the only tax you owe. Most states also levy income tax on self-employment income. Nine states have no income tax at all: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. For everyone else, add your state rate to your total effective tax calculation.
Some states also levy their own self-employment or business taxes on top of state income tax. California, for example, charges a minimum $800 LLC tax even on single-member LLCs with no profit.
A single freelancer with $80,000 gross income and $10,000 in deductible business expenses:
Add state tax on top. This is a simplified illustration — a tax professional or a proper calculation tool will account for every variable accurately.
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