Freelancers pay two federal taxes on the same profit. They are calculated differently, fund different things and respond differently to deductions. Knowing which is which explains most tax surprises.
The short version
| Self-employment tax | Income tax | |
|---|---|---|
| What it funds | Social Security and Medicare | General federal budget |
| Rate | 15.3% (flat), on 92.35% of profit | 10% to 37% (brackets) |
| Cap | 12.4% part stops at $184,500 (2026) | None |
| Standard deduction applies? | No | Yes |
| Lowered by retirement contributions or health insurance? | No | Yes |
| Form | Schedule SE | Form 1040 |
Why self-employment tax feels so big
Self-employment tax starts with your first dollars of profit (once you pass $400 a year). There is no standard deduction and no low bracket. For many freelancers with moderate income, it is larger than their income tax.
Self-employment tax: $12,010.
Income tax: $5,790 (after the standard deduction, the deduction for half of SE tax and the 20% QBI deduction).
Total federal: $17,800 — and more than two-thirds of it is self-employment tax.
How they interact
Half of your self-employment tax is deducted when figuring income tax, so the two are linked. The QBI deduction also reduces income tax only. Both are built into the quarterly estimated tax calculator.
Which deductions cut which tax
- Business expenses on Schedule C — home office, mileage, software, equipment — reduce both, because they lower profit.
- Retirement contributions, self-employed health insurance and the standard deduction reduce income tax only.
That is why a dollar of business expense is worth more to a freelancer than a dollar of retirement contribution, as far as this year’s tax goes.
Do you get anything back for self-employment tax?
Yes. It is the same contribution an employee and employer make together, and it earns you Social Security credits and future retirement and Medicare benefits. Paying less of it (for example through an S corporation) also means lower recorded earnings for Social Security.
Try your own numbers in the self-employment tax calculator.