The Hidden Cost of Freelancing

One of the biggest shocks for new freelancers is the Self-Employment (SE) Tax. While traditional employees have their Social Security and Medicare taxes split with their employer, freelancers are responsible for both halves.

What is the SE Tax Rate?

Currently, the self-employment tax rate is 15.3%. This is composed of:

1. 12.4% for Social Security
2. 2.9% for Medicare

This is applied to your net earnings from self-employment. Generally, only 92.35% of your net earnings are subject to the tax.

Quarterly Estimated Payments

Unlike a W-2 job where taxes are withheld from every paycheck, you are responsible for paying your own taxes throughout the year. If you expect to owe more than $1,000 in taxes, the IRS requires you to make Quarterly Estimated Payments.

Failing to pay these on time (April, June, September, and January) can result in underpayment penalties.

Deductions: Your Best Friend

You only pay tax on your net profit, not your total revenue. Make sure to track all business-related expenses, including:

• Home office equipment
• Software subscriptions
• Marketing costs
• Professional services (Accounting, Legal)

Use the Right Tools

Don't guess how much you owe. Use our Self-Employment Tax Calculator to get a precise estimate of your SE tax and see exactly how much you should be setting aside from every invoice.