What Is a Self-Employment Tax?
Self-employment tax is the 15.3% US federal tax (12.4% Social Security + 2.9% Medicare) freelancers pay on net earnings — the single largest cost employees never see.
How self-employment tax works
Self-employment tax totals 15.3% on the first $168,600 of net earnings (2024 wage base): 12.4% funds Social Security and 2.9% funds Medicare. The IRS calculates it on 92.35% of your net profit, so $100,000 in profit produces a $14,130 bill rather than $15,300. Earnings above the Social Security cap drop to the 2.9% Medicare rate, and incomes over $200,000 ($250,000 married filing jointly) add a 0.9% Additional Medicare Tax. You pay this on top of regular federal and state income tax, which is why freelancers owe far more than a salaried worker on the same gross.
The tax exists because employees split FICA with their employer, who pays half (7.65%) invisibly. As your own employer, you cover both halves. The IRS lets you deduct half of the self-employment tax from gross income, softening the income-tax side but never the 15.3% itself.
The pricing implication is direct: this tax alone consumes roughly 14-15% of profit before income tax touches it. A freelancer who quit a $80,000 salary and charges to match $80,000 in revenue takes home thousands less. Build the 15.3% into your floor rate from the start. If you want $60 per billable hour after self-employment tax, you must charge closer to $71. Treating it as an afterthought turns a healthy-looking rate into a loss.
Example
A $90,000 profit year
Maya nets $90,000 in profit from her design business. The IRS applies self-employment tax to 92.35% of that, or $83,115. At 15.3%, she owes $12,716 in self-employment tax — before any income tax. She deducts half ($6,358) from her gross income, which trims her income-tax bill but not the $12,716 itself. To absorb this, Maya raised her project fees by 17%: a website she used to quote at $5,000 now lists at $5,850, covering the tax bite and protecting her target take-home.
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