A first-year freelance UX consultant reported $85,000 in net profit to her tax preparer in February. Her federal income tax was about $10,500, while self-employment tax added $12,010. She had saved for the first bill, but not the second.
Self-employment tax surprises founders because employees do not see the employer payroll-tax share on their pay stubs. When you work independently, you pay both shares yourself, quarterly.
Breaking Down 15.3%
The 15.3% self-employment tax has two parts: 12.4% for Social Security and 2.9% for Medicare. Employees pay 6.2% and 1.45%, with employers matching those amounts. Self-employed workers cover the full 15.3%.
Client payments arrive without employer withholding. Your liability builds during the year, so you must estimate it and send quarterly IRS payments. Waiting until April can mean owing the tax plus an underpayment penalty.
The 92.35% Multiplier
The 15.3% rate applies after the IRS calculates self-employment earnings, not directly to gross profit. It uses a 92.35% multiplier because half of SE tax is deductible before determining the taxable base. In other words, 92.35% equals 1 minus half of 15.3%.
Multiply net profit by 0.9235 for SE earnings, then multiply that result by 0.153.
$85,000 net profit:
- SE earnings: $85,000 x 0.9235 = $78,498
- SE tax: $78,498 x 0.153 = $12,010
Across four quarters, that is about $3,003 per quarter in SE tax, before federal income tax.
How the Social Security Wage Base Limits Exposure
The 12.4% Social Security share applies only to the annual wage base, $176,100 for tax year 2025, which usually rises. After net SE earnings pass it, the 12.4% share stops. The 2.9% Medicare share has no ceiling.
For a founder near or above $190,000 in net profit, the effective SE tax rate above the wage base falls from 15.3% to 2.9%. Applying 15.3% to all profit overstates the bill. Quarterly estimates should account for this.
At higher incomes, the 0.9% Additional Medicare Tax applies to earned income above $200,000 for single filers, or $250,000 for married filing jointly. It is calculated separately but affects estimated payments.
The Deduction That Offsets Some Cost
You can deduct half of your SE tax as an above-the-line deduction on Schedule 1. It lowers adjusted gross income and income tax, but not the SE tax itself.
With $12,010 in SE tax, half is $6,005. At a 22% federal bracket, that saves about $1,321 in income tax, making the net cost about $10,689 rather than $12,010.
The deduction matters when filing, but does not reduce cash needed during the year. Reserve for the full SE tax quarterly, then treat the income-tax savings as a filing-time adjustment.
SE Tax at Different Income Levels
Here is how SE tax changes across common income levels:
- $40,000 net profit: $40,000 x 0.9235 x 0.153 = $5,652 annual SE tax, about $1,413 quarterly
- $75,000 net profit: $75,000 x 0.9235 x 0.153 = $10,597 annual SE tax, about $2,649 quarterly
- $120,000 net profit: $120,000 x 0.9235 x 0.153 = $16,955 annual SE tax, about $4,239 quarterly
At $40,000 in net profit, SE tax often exceeds federal income tax because SE tax is flat while income tax begins at lower rates. That can surprise founders who expect income tax to be the larger bill.
Planning Quarterly Cash for SE Tax
Treat SE tax as a predictable expense arriving four times yearly, not a year-end shock. Two steps help make that practical.
First, estimate quarterly net profit once you are 70% through the quarter. Multiply it by 0.9235 x 0.153, then add income tax at your marginal rate. The total is your estimated quarterly payment.
Second, send a fixed share of every payment to a tax account. For $50,000 to $120,000 in net self-employment income, setting aside 28% to 33% generally covers combined SE and federal income tax. Higher brackets or states with income tax may require more.
Washington state, where we are based, has no state income tax, reducing founders' quarterly obligation. California, New York, and most other states add a state income-tax layer to the total.
What This Means for Pricing Work
Employees think in gross salary. Self-employed founders should think in net pay after SE and income tax. A project producing $10,000 in net profit may send roughly $3,000 to $3,500 to federal taxes, depending on your bracket. Use that when pricing work and judging client or project profitability.
SE tax need not discourage self-employment. Flexible pricing, deductible business expenses, and retirement accounts can materially offset the added burden. First, understand the quarterly cost so you can make those choices clearly.
This article gives general information on self-employment tax under current federal law. Your liability depends on total income, filing status, deductions, and state taxes. A CPA or enrolled agent can calculate your proper quarterly payments.