Freelancing? Here's What to Set Aside Every Month
When you're on someone else's payroll, your employer automatically covers half of your Social Security and Medicare taxes and often subsidizes your health plan too. Go freelance, and both of those costs land entirely on you. The IRS requires self-employed people to pay Self-Employment Tax, 15.3% of net earnings covering the full employee-and-employer share of Social Security and Medicare, with no way to opt out — unlike retirement systems in some countries that let independent workers choose whether to enroll. On top of that, most freelancers buy their own health coverage through the ACA marketplace, so the real monthly cost of self-employment is self-employment tax plus a health insurance premium, not just a smaller paycheck.
How It's Calculated
| Item | Calculation |
|---|---|
| SE taxable base | Net earnings × 92.35% |
| Social Security portion | min(base, wage base) × 12.4% |
| Medicare portion | base × 2.9% (no income cap) |
| Total monthly cost | Self-employment tax + health insurance premium |
The Social Security portion only applies up to an annual wage base that's adjusted most years, so very high earners eventually stop owing that piece for the rest of the year, while the Medicare portion keeps applying to every dollar (plus an extra 0.9% surtax above roughly $200,000, not included here). Half of self-employment tax is also deductible when you file, which reduces your income tax bill even though it doesn't lower what you pay upfront. This tool is a simplified monthly estimate; actual liability depends on your full tax return, deductions, and current-year thresholds.
Frequently Asked Questions
No — Self-Employment Tax (15.3% of net earnings) is mandatory for the self-employed, with no opt-out available.
It's the most common, and you may qualify for a premium tax credit. COBRA or a spouse's plan are other options to compare.
※ Simplified estimate using an approximate Social Security wage base; consult a tax professional for your exact liability.