The first thing to understand is that self-employment tax isn't calculated on the money you receive from clients. It's calculated on your profit.
Let's say you earned $50,000 from freelancing.
If you spent $8,000 on business expenses like software, internet, equipment or advertising, your net profit becomes $42,000.
That's the number you'll use for the next steps, not your total revenue.
Adjust to 92.35%
This is the part that confuses almost every beginner.
The IRS doesn't calculate self-employment tax on 100% of your net profit.
Instead, you multiply it by 92.35%.
For example:
$42,000 × 92.35% = $38,787
This adjusted amount becomes your taxable self-employment earnings.
Apply 15.3% SE Tax
Now calculate the actual self-employment tax.
Multiply the adjusted earnings by 15.3%.
Using the example above:
$38,787 × 15.3% = $5,934.41
That 15.3% covers both Social Security (12.4%) and Medicare (2.9%) because, as a freelancer, you're effectively paying both the employee and employer portions.
Deduct Half of SE Tax
Here's something many new freelancers don't realise.
You still pay the full self-employment tax, but when calculating your federal income tax, you're generally allowed to deduct 50% of that self-employment tax from your income.
It doesn't reduce your SE tax itself. It reduces your taxable income for income tax purposes.
Calculate Federal Income Tax
Self-employment tax and federal income tax are not the same thing.
After adjusting your income and claiming eligible deductions, calculate your federal income tax using the applicable IRS tax brackets.
One mistake I see quite often is freelancers calculating only self-employment tax and forgetting they'll probably owe federal income tax too.
Make Quarterly Payments
When you're employed, your employer withholds taxes from every paycheck.
As a freelancer, you're responsible for doing that yourself.
If you expect to owe enough tax, you'll generally need to make estimated quarterly tax payments using Form 1040-ES instead of waiting until the end of the year. Missing them can lead to penalties and interest.
File Schedule C & Schedule SE
At tax time, freelancers typically use:
Schedule C to report business income and expenses.
Schedule SE to calculate self-employment tax.
Form 1040 to report total income and tax liability.
Honestly, the forms look intimidating the first time. Once you've gone through them once or twice, the process becomes much less confusing.
FAQs
Who has to pay self-employment tax?
Generally, if your net earnings from self-employment are $400 or more, you must file Schedule SE and pay self-employment tax.
Why do we multiply it by 92.35%?
The IRS will utilize the regular computation technique to apply 92.35% of your net earnings to establish the amount subject to self-employment tax.
Can I write off business expenses?
Yes. Your net earnings is reduced by ordinary and necessary company expenses before you figure your self-employment tax.
Do freelancers have to pay taxes quarterly?
If you expect to owe enough tax, the IRS normally expects projected quarterly payments to avoid penalties.
Must Read: Easily File Taxes as a Freelancer in the US: A 2026 Guide
