Self-employment tax covers Social Security and Medicare for people who work for themselves. As both employer and employee, you pay both halves of FICA: a combined 15.3% on the first $176,100 of SE income (2025). The IRS applies this to 92.35% of net profit, not the full amount, because W-2 employees pay only half of FICA and employers deduct the other half before wages reach the employee.
Worked example: Marcus is a single freelance consultant with $95,000 net profit and no other income in 2025.
Unlike W-2 employees, self-employed individuals do not have tax withheld automatically. The IRS requires estimated payments four times per year. Missing or underpaying these installments triggers an underpayment penalty even if you pay the full amount owed by April of the following year. The safe harbor rule protects you from the penalty if you pay either 100% of last year's total tax (110% if your prior-year AGI exceeded $150,000) or 90% of the current year's actual tax liability.
| Payment | Due Date | Income Period Covered |
|---|---|---|
| Q1 2025 | April 15, 2025 | January 1 - March 31 |
| Q2 2025 | June 16, 2025 | April 1 - May 31 |
| Q3 2025 | September 15, 2025 | June 1 - August 31 |
| Q4 2025 | January 15, 2026 | September 1 - December 31 |
A simple approach: divide your estimated total annual tax by 4 and send that amount by each due date. If your income is uneven throughout the year, the annualized income installment method (Form 2210) lets you match payments to actual income timing.
As a sole proprietor, every dollar of net profit is subject to SE tax. An S-corporation splits income into a salary (subject to payroll taxes) and a shareholder distribution (not subject to SE tax). The savings can be significant once net profit is high enough to justify the administrative costs of running an S-corp (payroll setup, additional tax filings, state fees). If you also hold retirement savings alongside your self-employment income, the Roth IRA contribution calculator can help you plan how much to set aside while lowering your AGI.
| Factor | Sole Proprietor | S-Corp |
|---|---|---|
| SE tax base | All net profit | Salary only |
| SE tax rate on distributions | 15.3% | 0% |
| Payroll administration | None required | Required |
| State compliance | Simpler | More complex |
| Break-even point | N/A | ~$60,000-80,000 net profit |
| SEP-IRA contribution limit | 25% of net SE income | 25% of W-2 salary |
The IRS requires S-corp owner-employees to pay a "reasonable salary" before taking distributions. Setting the salary too low is a common audit trigger. Consult a CPA before making the S-corp election.
Researches and verifies the formulas, methodology, and source data behind each calculator on CalculatorFlux. All tools are built and checked against the cited references before publication.