The Tax MathNotebook

§ VII

Chapter VII

Filed under: self-employment, Schedule C, SE tax, QBI deduction, quarterly estimates.

Effective Tax Rate for the Self-Employed

Self-employment changes the FICA picture, adds the QBI deduction, and replaces withholding with quarterly estimated payments. The arithmetic is more involved but still mechanical.

§ 1

The 15.3% headline

Both halves of FICA, paid by one person. The deductible half softens the blow.

W-2 employees pay 7.65 percent FICA. Their employer pays a matching 7.65. Self-employed filers pay both halves themselves: 12.4 percent Social Security on net earnings up to the wage base, and 2.9 percent Medicare on all net earnings, for a combined 15.3 percent on the first $168,600 of self-employment income (2026). The 0.9 percent Additional Medicare applies above $200,000 single ($250,000 MFJ).

SE tax is computed on 92.35 percent of net Schedule C earnings (the formula is roughly an employer-share workaround). Half of the SE tax is then deductible "above the line" against federal income tax. So while the headline 15.3 percent rate is real, the after-deduction economics are noticeably less brutal than they first appear.

§ 2Worked Example, $100,000 Schedule C, Single, 2026

Self-employment tax

  1. Net SE earnings 100,000 × 0.9235  =  92,350
  2. SS portion: 92,350 × 0.124  =  11,451
  3. Medicare: 92,350 × 0.029  =  2,678
  4. Total SE tax  =  14,129
  5. Deductible half: 7,065 (above the line)

Federal income tax

  1. Net 100,000 − 7,065 (SE half)  =  92,935 AGI
  2. QBI deduction approx 20% of QBI  =  18,587
  3. 92,935 − 18,587 − 14,600 std. ded.  =  59,748 taxable
  4. Tax: 1,192.50 + 4,386 + 2,479.84  =  8,058
  5. Federal income tax  =  8,058

Total federal

$22,187

SE tax + income tax

Effective on $100K

22.2%

vs ~21.4% W-2

Quarterly estimate

~$5,547

due Apr/Jun/Sep/Jan

§ 3The QBI Deduction

Section 199A allows most pass-through business owners (sole proprietors, single-member LLCs, partners, S-corp shareholders) to deduct up to 20 percent of qualified business income (QBI). For 2026, the full deduction is available below taxable income of approximately $241,950 single / $483,900 MFJ. Above those thresholds, "specified service trades or businesses" (consulting, law, medicine, accounting, financial services, athletics, performing arts) face phase-outs and eventual elimination of the deduction. Non-SSTB businesses retain the deduction subject to a wage-and-property cap.

The QBI deduction is taken below the line but does not reduce SE tax. It reduces only federal income tax. For the $100,000 Schedule C example above, the $18,587 QBI deduction saves approximately $4,089 of federal income tax at the 22 percent marginal rate.

§ 4Quarterly Estimated Payments

The IRS expects tax to be paid as it is earned. Self-employed filers without W-2 withholding must make quarterly estimated payments on April 15, June 15, September 15, and January 15. Underpayment triggers a penalty. The safe harbor: pay at least 100 percent of last year's total tax (110 percent if your AGI exceeded $150,000), or 90 percent of the current year's actual tax, whichever is smaller.

The simplest practice for an established freelancer: divide last year's total federal tax by four and pay that each quarter, then settle the balance with the April return. New freelancers without a prior-year baseline should set aside 25 to 30 percent of every invoice in a separate account and pay quarterly from there.