Going self-employed in the United States means becoming your own payroll department. There is no employer quietly withholding taxes from each paycheck, you calculate what you owe, set it aside, and pay it yourself, usually four times a year. For most freelancers and small-business owners the surprise is not income tax but the additional self-employment tax that funds Social Security and Medicare.
This guide explains how the numbers work in 2026 for the two most common structures: the sole proprietor and the single-member LLC. It covers the 15.3% self-employment tax, the federal income-tax brackets, the valuable 20% QBI deduction, and how to keep the IRS happy with quarterly estimated payments. Figures reflect 2025/2026 rules and are informational, not tax advice.
The good news is that the US system, for all its reputation, is navigable once you see how the pieces fit. There are really only a handful of moving parts, and the same logic applies whether you earn $20,000 on the side or $200,000 full-time. Get comfortable with them and you can forecast your bill to within a few hundred dollars.
Sole proprietor vs. single-member LLC
Here is the part that trips people up: for federal income tax, a sole proprietor and a single-member LLC are usually taxed identically. Both are "pass-through" entities, the business itself pays no separate federal tax, and the profit flows onto your personal return.
- A sole proprietor reports business income on Schedule C attached to Form 1040.
- A single-member LLC is "disregarded" by default and also files Schedule C, same forms, same tax.
The LLC's advantage is legal, not tax: it creates a liability shield between your business and personal assets. The tax math only diverges if the LLC elects to be taxed as an S-corporation, which is a more advanced strategy. You can model the basic pass-through outcome with our sole proprietor & LLC tax calculator.
The two taxes you actually pay
Self-employment income faces two separate federal taxes:
- Self-employment (SE) tax, Social Security and Medicare, at 15.3%.
- Federal income tax, the progressive brackets, from 10% to 37%.
Most states add their own income tax on top, though a handful (Texas, Florida, Washington and others) levy none. This guide focuses on the federal layer.
The reason SE tax feels punishing is that it hits your first dollar of profit, with no allowance to shelter it. Income tax, by contrast, only starts after your standard deduction. That is why a freelancer earning a modest profit can pay more in self-employment tax than in income tax, a reversal that catches almost everyone off guard in their first year.
How the 15.3% self-employment tax works
When you are an employee, you and your employer each pay half of Social Security and Medicare. When you are self-employed, you pay both halves, that is the 15.3%, made up of 12.4% for Social Security and 2.9% for Medicare.
Two important details soften the blow:
- You only pay SE tax on 92.35% of your net profit (this offsets the employer-share deduction).
- You can deduct half of your SE tax when calculating income tax.
- The 12.4% Social Security portion only applies up to an annual wage-base cap; income above it is taxed just 2.9% for Medicare.
2025 federal income tax brackets
Income tax is charged on your taxable income after the standard deduction and other write-offs. The 2025 brackets for a single filer look like this:
| Rate | Single filer taxable income |
|---|---|
| 10% | $0 – $11,925 |
| 12% | $11,925 – $48,475 |
| 22% | $48,475 – $103,350 |
| 24% | $103,350 – $197,300 |
| 32% | $197,300 – $250,525 |
| 35% | $250,525 – $626,350 |
| 37% | Over $626,350 |
These are marginal rates: only the dollars inside each band are taxed at that band's rate, so your effective rate is always lower than your top bracket.
The 20% QBI deduction
One of the best breaks for the self-employed is the Qualified Business Income (QBI) deduction. It lets many pass-through owners deduct up to 20% of their qualified business profit before income tax is calculated, though not before SE tax.
The deduction phases out for high earners in certain "specified service" fields (health, law, consulting, and similar) once taxable income passes annually indexed thresholds. For most modest-earning freelancers, though, the full 20% is available and materially lowers the income-tax bill.
Two things to remember about QBI. First, it reduces income tax only, it never touches the 15.3% SE tax. Second, it is calculated on the lesser of your qualified business income or your overall taxable income, so a large personal deduction elsewhere can shrink it. Despite those wrinkles, it remains one of the most generous breaks available to the self-employed, and it applies automatically to sole proprietors and single-member LLCs alike.
A full worked example
Meet Marcus, a single freelance web developer operating as a single-member LLC. He nets $80,000 in profit and takes the standard deduction ($15,000 for a single filer in 2025). Here is the flow:
| Step | Calculation | Amount |
|---|---|---|
| Net business profit | - | $80,000 |
| SE tax base | $80,000 × 92.35% | $73,880 |
| Self-employment tax | $73,880 × 15.3% | $11,304 |
| Half of SE tax (deduction) | $11,304 × 50% | $5,652 |
| QBI deduction | ~20% of qualified income | ~$14,870 |
| Taxable income | $80,000 − $5,652 − $15,000 − $14,870 | ~$44,478 |
| Federal income tax | 10% and 12% bands | ~$5,096 |
| Total federal tax | SE tax + income tax | ~$16,400 |
Marcus's total federal burden is roughly 20% of profit. Notice how the SE tax deduction and QBI deduction stack to pull his taxable income well below his headline profit, without them the bill would be far higher.
It is also worth seeing how the two taxes diverge. Marcus pays about $11,300 in self-employment tax but only around $5,100 in federal income tax, more than double in SE tax. This is the pattern most freelancers underestimate: at moderate income levels, funding Social Security and Medicare is your single largest federal cost, not the income tax everyone talks about.
Retirement accounts as a tax tool
One of the most powerful moves available to the self-employed is funding a dedicated retirement account. Contributions are generally deductible, reducing your taxable income dollar for dollar, while the money grows for your future.
Two popular options for solo operators:
- SEP-IRA, lets you contribute a percentage of net self-employment income up to a generous annual cap, with minimal paperwork.
- Solo 401(k), allows both an employee-style deferral and an employer-style contribution, often letting you shelter more at the same income.
Because these deductions lower your income tax (though not your SE tax), a well-timed contribution before the filing deadline can meaningfully shrink what you owe while building long-term wealth.
Quarterly estimated taxes
The US tax system is pay-as-you-go. Because no employer withholds for you, the IRS expects quarterly estimated payments if you will owe $1,000 or more for the year. The 2026 deadlines fall in April, June, September, and the following January.
Miss them, or underpay, and you can face an underpayment penalty even if you settle up in April. A safe-harbor rule protects you if you pay at least 100% of last year's tax (110% for higher earners). To avoid a scramble, set money aside from every client payment, our tax set-aside calculator suggests a percentage based on your income.
A practical habit that saves a lot of stress: open a separate savings account and move a fixed slice, often 25% to 30% for mid-range earners, into it the moment a client pays. When each estimated deadline arrives, the money is already there, and you are never dipping into working capital to cover the IRS.
State income tax
Federal tax is only part of the picture. Most states levy their own income tax on self-employment profit, with rates and rules that vary widely. California's top rate exceeds 13%, while states like Texas, Florida, Nevada, Washington and Tennessee impose no state income tax at all.
A few things to check for your own state:
- Whether it has a flat rate or its own progressive brackets.
- Whether it charges a separate LLC fee or franchise tax (California, for example, charges an annual LLC fee).
- Local city taxes, which some jurisdictions add on top.
If you are comparing where to base yourself, or thinking about working abroad, our compare taxes by country tool lines the US up against the UK and Italy.
Deductions that lower your bill
Every legitimate business expense reduces both your income tax and your SE tax, so tracking them is worth real money. Common deductions include:
- Home-office space used regularly and exclusively for work.
- Business use of your car (mileage or actual costs).
- Software, subscriptions, and professional tools.
- Health insurance premiums (as an above-the-line deduction).
- Retirement contributions to a SEP-IRA or Solo 401(k).
Unfamiliar with a term like "above-the-line" or "pass-through"? Our tax glossary defines the jargon in plain English.
When an S-corp election makes sense
Once profit climbs, often around $80,000–$100,000 and up, some LLC owners elect S-corporation status. The owner pays themselves a "reasonable salary" subject to payroll taxes, while remaining profit is distributed free of the 15.3% SE tax. The savings can be significant, but so is the added complexity: payroll filings, a separate return, and IRS scrutiny of that salary. It is a conversation to have with a CPA once your numbers justify it.
Where the rules come from
US self-employment tax rules are set by the Internal Revenue Service (IRS). Schedule C, Schedule SE, and Form 1040-ES are the core forms, and IRS Publication 334 (Tax Guide for Small Business, 2025) is the authoritative reference. Brackets and thresholds are inflation-adjusted each year, so confirm the current figures before filing. For an English-language cross-check, the PwC Worldwide Tax Summaries (2025) also cover US individual taxation.
Estimate your own bill
The best way to avoid an April surprise is to run the numbers before you file. Use our sole proprietor & LLC tax calculator to project your self-employment tax, QBI deduction and federal income tax from a single profit figure, then feed that into the tax set-aside calculator to work out exactly how much to reserve from each payment for your quarterly estimates.