Taxes when you work for yourself
Employees split Social Security and Medicare with their employer and have income tax withheld from every paycheck. Freelancers, contractors and sole proprietors pay both halves themselves through self-employment tax, and nobody withholds anything, so they must set money aside and send estimated payments. This calculator estimates both taxes for 2026.
Self-employment tax
- Net earnings from self-employment = net profit × 92.35%. The reduction mirrors the employer half that an employee never sees.
- Social Security: 12.4% of net earnings, up to the 2026 wage base of $184,500, minus any W-2 wages you already earned.
- Medicare: 2.9% of all net earnings, plus 0.9% above $200,000 ($250,000 married filing jointly).
- No self-employment tax is due if net earnings are under $400.
Half of the self-employment tax is deductible when computing income tax.
Income tax on the profit
- Adjusted gross income = profit + wages − half of the self-employment tax.
- Standard deduction for 2026: $16,100 single, $32,200 married filing jointly, $24,150 head of household.
- Qualified business income deduction: up to 20% of business profit, limited to taxable income. The deduction is now permanent. For specified service businesses such as consulting, law or health, it phases out above roughly $200,000 of taxable income ($400,000 married), which the calculator does not model.
- The rest is taxed with the ordinary 2026 brackets.
Worked example: $80,000 of profit, single
- Net earnings: 80,000 × 0.9235 = $73,880.
- Self-employment tax: 12.4% + 2.9% of 73,880 = $11,304.
- Half deducted: $5,652, so adjusted gross income is $74,348.
- After the standard deduction: $58,248. The QBI deduction of 20% removes $11,650, leaving taxable income of $46,599.
- Federal income tax: $5,344.
- Total: $16,647, or 20.8% of profit. Quarterly estimated payments: about $4,162.
Total federal tax by profit (single, no other income)
| Profit | SE tax | Total federal tax | Share of profit |
|---|---|---|---|
| $20,000 | $2,826 | $3,025 | 15.1% |
| $40,000 | $5,652 | $7,427 | 18.6% |
| $60,000 | $8,478 | $12,037 | 20.1% |
| $80,000 | $11,304 | $16,647 | 20.8% |
| $120,000 | $16,955 | $28,462 | 23.7% |
Quarterly estimated taxes
The IRS expects payments by about April 15, June 15, September 15 and January 15. You generally avoid an underpayment penalty if you pay at least 100% of last year’s total tax (110% if your adjusted gross income was above $150,000) or 90% of this year’s. Many freelancers simply move 25 to 30% of every invoice into a separate savings account.
Ways to lower the bill
Track every business expense, including a home office used regularly and exclusively for work, mileage, software and equipment. Self-employed health insurance premiums are deductible, and a SEP IRA or solo 401(k) lets you shelter a large share of profit. State income tax comes on top in most states; enter your state rate to include it.