Why Self-Employed Workers Pay More Tax
FICA tax comparison: W-2 employee vs. self-employed
| Tax | W-2 Employee | Self-Employed |
|---|---|---|
| Social Security | 6.2% (employee pays) | 12.4% (pays both sides) |
| Medicare | 1.45% (employee pays) | 2.9% (pays both sides) |
| Total FICA equivalent | 7.65% | 15.3% |
| Employer also pays | 7.65% (you don’t see this) | You pay this yourself |
| SE Tax deduction | N/A | Deduct 50% of SE tax from income |
SE Tax = $75,000 × 0.9235 × 15.3% = $10,599. SE Tax Deduction (50%): -$5,299. Federal taxable income: ~$69,701. Federal income tax (22% effective): ~$9,834. Net take-home (no state): $75,000 - $10,599 - $9,834 = $54,567 annually (~$4,547/month). W-2 equivalent: $67,000/year.
Self-Employed Take-Home vs. Equivalent W-2 Salary
A freelancer earning $75,000 in net self-employment income takes home less than a W-2 employee earning $75,000 — because the employer’s FICA match is included in the freelance rate rather than being paid separately. A freelancer who wants equivalent take-home to a $75,000 W-2 employee generally needs to earn approximately $85,000-$90,000 in gross freelance income to net the same amount.
- Self-employment tax (15.3%) applies to 92.35% of net self-employment income
- 50% of the SE tax is deductible as an above-the-line deduction on Form 1040
- Self-employed individuals can deduct health insurance premiums 100% above-the-line
- Self-employed retirement contributions (SEP IRA, SIMPLE IRA) are also deductible and reduce income
- Quarterly estimated taxes are due April 15, June 15, September 15, and January 15
- Underpayment penalties apply if you pay less than 90% of current year or 100% of prior year liability
Estimate Your Self-Employment Take-Home Pay
Enter your expected net self-employment income to see your SE tax, estimated income tax, and actual take-home.