Self-Employment Tax for US Freelancers: The 15.3% Nobody Warns You About

The first freelance tax bill is almost always a shock, and it's usually the same shock: a tax that employees genuinely never see on their payslip.

The Number

The self-employment tax rate is 15.3%. The IRS splits it as:

• 12.4% for Social Security
• 2.9% for Medicare

That is on top of federal income tax on the same money. It is not instead of it.

One detail that changes the arithmetic and is missing from most explanations: the rate isn't applied to your whole net profit. The IRS states that "the amount subject to self-employment tax is 92.35% of your net earnings from self-employment." So you multiply net earnings by 92.35% first, then apply 15.3% to that.

On $60,000 of net earnings, that's $60,000 × 92.35% × 15.3% ≈ $8,478, not the $9,180 a flat 15.3% would suggest.

Why It's Double What Employees Pay

An employee looking at their payslip sees roughly 7.65% withheld for Social Security and Medicare. Their employer quietly pays the matching 7.65%, and most employees never think about it.

When you're self-employed, you are both parties. You pay both halves. Hence 15.3%.

The $400 Threshold

The IRS states you must file if net earnings from self-employment were $400 or more (excluding church employee income).

Four hundred dollars. That's one small project. There is no meaningful "hobby" allowance here — side income from a weekend of freelancing crosses the line almost immediately.

The Deduction That Softens It

You can deduct the employer-equivalent portion — roughly half the self-employment tax, about 7.65% of net earnings — when figuring your adjusted gross income.

Read that carefully, because it's widely misunderstood: the deduction reduces your taxable income, which lowers your income tax. It does not reduce the self-employment tax itself. You still owe the full 15.3%; you just don't pay income tax on part of it.

Two Complications Worth Knowing

The Social Security portion is capped. Only earnings up to an annual limit are subject to the 12.4% Social Security component; above it, only the 2.9% Medicare portion continues. That cap changes every year, so check the current figure on the IRS page rather than trusting any article — this one included.

There's an extra Medicare tax at higher incomes. An additional 0.9% applies above threshold amounts that depend on your filing status, ranging from $125,000 to $250,000.

Quarterly Estimated Payments

Nobody withholds tax from a client payment. That's your job.

The IRS says self-employed individuals may have to file estimated taxes quarterly. Whether you must depends on how much you expect to owe, so read the Estimated Taxes page linked below rather than assuming either way.

The practical failure mode isn't misunderstanding the rule — it's spending the money. Freelancers treat the full invoice as income, then find in April that a substantial share was never theirs.

What This Means for Your Rates

Work backwards from the tax, not forwards from the invoice.

If you need to clear a certain amount, remember that self-employment tax alone takes 15.3% off net earnings before income tax touches it. Add the payment-processing cost of collecting the money — commonly 3% to 9% on international invoices — and a meaningful share of a headline rate is gone before you count anything else.

This is not a reason to avoid freelancing. It's the reason experienced freelancers charge noticeably more than the salaried equivalent, and why quoting "what I used to earn per hour" is the classic beginner mistake.

Where to Verify Any of This

Every rate and threshold above is published by the IRS on the pages linked below. Tax figures change annually and the rules around estimated payments depend on your specific circumstances, so use these as an orientation and confirm current numbers directly — ideally with a professional who can see your whole situation.