Self-employed individuals pay both the employer and employee portions of Social Security and Medicare taxes, totaling 15.3% on net self-employment income (12.4% Social Security up to the wage base, 2.9% Medicare with no cap). This is in addition to regular income tax, which comes as a surprise to many new freelancers. Because no employer withholds taxes, self-employed workers must make quarterly estimated tax payments (Form 1040-ES) to avoid underpayment penalties. Net self-employment income is calculated on Schedule C (business income minus deductible business expenses) and Schedule SE (the actual SE tax calculation). The IRS allows a deduction for the employer-equivalent portion of SE tax (half of the 15.3%), which reduces adjusted gross income but not the SE tax itself.
Take a freelancer earning $60,000 in gross revenue with $10,000 in business expenses and calculate the full tax picture: Schedule C net income, SE tax on Schedule SE, the above-the-line deduction for half of SE tax, and then income tax on the adjusted gross income. Compare total taxes to what a W-2 employee earning $50,000 would pay. The difference (often $3,000-$5,000+) makes the self-employment tax burden tangible.
When you work as an employee, your pay stub shows two separate FICA deductions — one for Social Security (6.2%) and one for Medicare (1.45%). What the pay stub doesn't show is that your employer pays an equal amount on your behalf, invisibly. The employer's matching 6.2% + 1.45% never appears in your check; it's a separate payroll tax the company remits. As a self-employed worker, you are simultaneously the employee and the employer — so you owe both halves. That's where the 15.3% self-employment tax comes from: 12.4% Social Security + 2.9% Medicare, both sides combined.
The calculation flows through two IRS forms. Schedule C is where you report your business: gross revenue minus deductible business expenses equals net profit. That net profit is your self-employment income. Schedule SE takes that net profit and calculates the SE tax. The IRS applies SE tax to 92.35% of net profit (not 100%) — this adjustment approximates the fact that employees' wages are the base for FICA, not the total labor cost to the employer. On top of SE tax, you still owe regular income tax on the same net profit, calculated on your Form 1040. These are two separate tax obligations computed independently and then added together to get your total federal tax bill.
The one significant relief is the deduction for half of SE tax. Because the employer half of FICA is a deductible business expense for corporations, Congress gave self-employed workers a parallel deduction: you can deduct 50% of your SE tax from your gross income before calculating income tax. This reduces your adjusted gross income and therefore your income tax — but it does not reduce the SE tax itself. The practical effect is that the true additional tax burden of self-employment is less than the full 15.3% headline rate, but still substantial — typically several thousand dollars per year on moderate freelance income.
Quarterly estimated tax payments are the logistical consequence of having no withholding. The IRS expects taxes to be paid throughout the year, not in a lump sum in April. The four quarterly deadlines fall roughly in April, June, September, and January. You estimate your expected income and tax liability, then prepay one quarter of that amount at each deadline using Form 1040-ES. Underpaying can trigger a penalty calculated on each quarter's shortfall — even if you pay everything by April 15. A common practical approach is to set aside 25–30% of every client payment into a dedicated savings account reserved for taxes, then make quarterly payments from that fund. This separates tax money from operating cash before it gets spent, which is the most reliable way to avoid an unpleasant surprise at filing time.