Self-Employment Tax Is 15.3%. Here's What That Actually Means for Your Rate

Most freelancers set their rate by thinking about what they want to make, dividing by hours, and calling it done. The problem is that number is gross revenue, and a meaningful chunk of it belongs to the IRS before you touch it.

Self-employment tax is the one that catches people off guard. It's separate from income tax, it comes out first, and it's bigger than most people expect.

Where the 15.3% comes from

When you're on a W-2, your employer pays half of your Social Security and Medicare taxes (7.65%) and you pay the other half (7.65%) through withholding. Together, that's 15.3% of your wages going to FICA.

When you're self-employed, you pay both sides. There's no employer. You are the employer. So 15.3% comes out of your net self-employment income before federal or state income tax touches anything.

The actual calculation is slightly more favorable than 15.3% of every dollar you earn. SE tax is applied to 92.35% of your net income, not 100%. That 7.65% reduction reflects the fact that an equivalent W-2 worker's employer share of FICA wouldn't count as income either. On $100,000 of net income, your SE tax base is $92,350 and your SE tax is $14,130 — not $15,300.

Above $176,100 in net earnings (the 2026 Social Security wage base), the 6.2% Social Security component drops out. You only pay the 2.9% Medicare portion on income above that threshold. High earners also pay an additional 0.9% Medicare surtax above $200,000 single / $250,000 married.

The deduction that softens the blow slightly

You can deduct half of SE tax from your gross income before calculating federal and state income tax. If your SE tax is $14,130, you deduct $7,065 from your taxable income. At a 22% federal rate, that's about $1,554 back.

It helps. It doesn't change the fundamental math much. SE tax is still a significant cost.

Why this wrecks freelance pricing

Say you want to take home $80,000. A W-2 employee earning $105,000 gross might net roughly $80,000 after income taxes at typical rates. A freelancer thinks: "I need to bill $105,000, so at 40 billable hours per week for 50 weeks, that's about $52/hr."

Wrong. The freelancer still owes SE tax on top of income tax. On $105,000 of net income, SE tax is about $14,900. Now they're down to $90,100 before income taxes. After a 20% effective combined income tax rate on that, take-home is closer to $72,000 — not $80,000.

To actually take home $80,000, the freelancer needs to bill somewhere around $125,000 depending on their exact tax situation. That's $62/hr at the same hours. The difference between $52 and $62 is the freelancer either underpricing by $10/hr or effectively working to pay a tax bill they didn't plan for.

The billability problem makes it worse

Most freelancers aren't billing 40 hours per week. Administrative work, sales, revisions, unbillable calls — these all eat into actual billable time. If you're billing 60% of your working hours, you need to divide your annual target by 1,248 hours (40 hours × 52 weeks × 0.60), not 2,080.

A $125,000 annual revenue target at 60% billability requires a $100/hr rate, not $62/hr.

The overhead nobody adds

Software subscriptions. Professional liability insurance. A home office. Accounting fees. Health insurance you pay out of pocket. Equipment. These are real costs of being in business, and they come out of your gross revenue before you pay yourself.

$10,000 in annual overhead on a $125,000 revenue target means you need $135,000 in gross revenue to net $80,000 after taxes. That changes the required rate again.

What to actually do

Use the Freelance Rate Calculator to solve backwards from your take-home goal. Enter your target income, hours, billability, overhead, and tax rates. The calculator runs an iterative solver — because the gross revenue you need affects your SE tax, which affects your taxable income, which affects your income tax, which determines what's left — and returns the exact hourly rate you need to charge.

The number is usually higher than people expect. That's the point. Better to know before you sign the contract than after you file your taxes.

Tax rates and calculations reference 2026 figures. Results are estimates for planning purposes — actual tax depends on deductions, credits, and filing situation.