Self-Employment Tax Explained: How It Is Calculated, With a $60,000 Example
October 21, 2026
Employees split Social Security and Medicare taxes with their employers: each pays 7.65% of wages. Self-employed people are both employer and employee, so they pay both halves, a total of 15.3% in the United States, through the self-employment tax. It is separate from income tax, which is calculated on a different base, and it is often the largest surprise for new freelancers.
The calculation is straightforward. Net self-employment earnings are multiplied by 92.35% (to mirror the employer's deduction for its half of the tax), and the result is taxed at 15.3% up to the Social Security wage base, with 2.9% Medicare tax on everything.
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Open the Tax Calculator →Step-by-Step Example
Suppose a freelancer has $60,000 of net profit after business expenses. Step 1: multiply by 0.9235 to get net earnings subject to the tax: $55,410. Step 2: multiply by 15.3%: $8,478. That is the self-employment tax. Step 3: deduct half of it, $4,239, when computing adjusted gross income for income tax purposes. So income tax is computed on $60,000 − $4,239 = $55,761, before the standard deduction and other adjustments.
The 15.3% breaks down into 12.4% for Social Security (up to an annual wage base that changes each year) and 2.9% for Medicare. Higher earners may also owe an additional Medicare tax above a threshold.
| Step | Calculation | Amount |
|---|---|---|
| Net profit | $60,000 | |
| Net earnings subject to SE tax | $60,000 x 92.35% | $55,410 |
| Self-employment tax | $55,410 x 15.3% | $8,478 |
| Deductible half | $8,478 / 2 | $4,239 |
| Income subject to income tax (before other deductions) | $60,000 - $4,239 | $55,761 |
Why Freelancers Pay More Than Employees
An employee earning $60,000 pays 7.65%, which is $4,590, while the employer pays another $4,590 that is not visible on the pay stub. A freelancer with $60,000 of profit pays $8,478. The employee's effective comparison is that the employer's half comes out of what would otherwise be higher pay. When comparing an employee salary to freelance income, remember that the freelancer must earn more gross income to match: approximately $5,000 or more extra at this level to cover the additional tax, plus benefits.
Retirement contributions, health insurance premiums, and a home office deduction can lower income tax, and some can reduce the base for self-employment tax, but rules differ.
Quarterly Estimated Payments
There is no employer withholding, so self-employed people generally must pay estimated tax in four installments during the year. A common safe harbor is to pay at least the lesser of 90% of this year's tax or 100% (or 110% for higher incomes) of last year's tax, but check current rules. Missing payments can cause underpayment penalties.
A practical approach is to set aside 25% to 30% of every payment received in a separate account and send quarterly estimates from it.
Ways to Reduce the Burden
Track all deductible business expenses: equipment, software, mileage, insurance, professional services, and the business share of the home. Contribute to retirement accounts designed for the self-employed, which reduce income tax. Consider the S corporation structure at higher income levels, where part of earnings can be taken as distributions, subject to reasonable-salary rules, but this adds complexity and cost and requires professional advice.
Other Countries
Many countries have similar systems. The United Kingdom has Class 2 and Class 4 National Insurance for the self-employed, Canada has CPP contributions for both halves, and many European countries have social insurance contributions. Rates and rules differ, so consult local guidance.
Frequently Asked Questions
What is the self-employment tax rate?
In the United States, 15.3% on 92.35% of net earnings up to the Social Security wage base, plus 2.9% Medicare on the rest.
Is half of the self-employment tax deductible?
Yes, you can deduct the employer-equivalent half when calculating adjusted gross income.
Do I need to make quarterly payments?
Generally yes if you expect to owe more than a small threshold in tax, to avoid penalties.
Does the self-employment tax apply to side income?
Yes, if your net self-employment earnings exceed a threshold ($400 in the US).
How much should I save from each payment?
A common range is 25% to 30%, adjusted for your actual tax situation.