Why the SE tax is the surprise that shocks every first-year freelancer
When you were a W-2 employee, your employer paid half of your FICA (7.65%) and you paid the other half. As a freelancer, you pay both halves yourself — 15.3% on net earnings up to the Social Security wage base, then 2.9% Medicare above it. On a $120k gross with $20k in deductions, that's roughly $15,300 in SE tax before you've paid any income tax. The 50%-of-SE-tax deduction on the income-tax side softens it but doesn't eliminate it.
FAQ
What if I underpay my quarterly estimates?
You owe an underpayment penalty. It's calculated based on the federal short-term rate plus 3%, prorated by the number of days late. The safe-harbor is to pay 100% of last year's total tax (110% if AGI > $150k) or 90% of this year's — whichever is smaller. Many freelancers just pay 100% of last year to avoid the math.
Can I deduct the home office even if I rent?
Yes. The simplified method is $5/sq ft up to 300 sq ft ($1,500 max). The regular method is a percentage of home costs equal to the office percentage of home sq ft. The regular method usually wins above ~$1,500. This calculator uses the regular method. The space must be used regularly and exclusively for business.
Why does SEP-IRA show up as a deduction here?
Because it lowers your AGI, which lowers income tax. The contribution itself doesn't escape SE tax. The 50% SE-tax deduction is automatic and additional. Solo 401(k) is more flexible if you have no employees (employee deferral up to $23k in 2024 + 20% employer contribution on net earnings).
Methodology
Net SE earnings = (gross − business expenses − home office deduction − ½ SE tax) × 0.9235. SE tax = min(net_SE, wage_base) × 0.153 + max(0, net_SE − wage_base) × 0.029. Income tax uses progressive brackets on (AGI − standard deduction), with the 50%-of-SE-tax adjustment to AGI. Quarterly estimate = total federal tax / 4. State tax and local tax are out of scope. Source: IRS Schedule SE and Form 1040-ES for 2024, IRS Pub. 587 (home office), IRS Pub. 560 (SEP-IRA).