Why your effective tax rate is higher than salaried friends
W-2 employees split payroll tax with their employer. As a freelancer, you pay both halves yourself. On a $90k US net profit you'll owe ~$12,700 in self-employment tax before income tax even enters the picture.
- • US (2025): 15.3% SE tax on the first $176,100, then 2.9% Medicare above (+0.9% Additional Medicare > $200k single).
- • UK: 6% Class 4 NIC between £12,570–£50,270, 2% above.
- • Canada: 11.4% CPP self-employed up to $68,500.
- • Australia: no separate SE tax, but no employer super either — fund it yourself.
Deductions that move the needle
Track these year-round, not at filing time. Most freelancers leave 10–20% on the table by missing legitimate deductions.
- • Home office (% of rent + utilities tied to a dedicated workspace).
- • Health insurance premiums (US — deductible above the line).
- • Retirement contributions: SEP-IRA / Solo 401(k) (US), SIPP (UK), RRSP (CA), concessional super (AU).
- • Software, hardware, education, professional services, mileage.
FAQ
Is this an official tax estimate?
No. This is an educational estimator using current published brackets. State/provincial/Scottish rates and individual deductions vary. Always confirm with a qualified tax professional.
Why do I have to pay quarterly?
Most tax authorities (IRS, HMRC, CRA, ATO) require self-employed taxpayers to pre-pay throughout the year. Underpaying triggers penalties and interest.
Should I incorporate to lower my taxes?
Sometimes. In the US, an S-corp election can reduce SE tax above ~$70–80k profit. In the UK, a limited company can be efficient at higher profit. Run the numbers with an accountant — admin overhead matters.
Important: this is not tax advice
Calculations use simplified, current published brackets for United States (2025). US estimates layer the selected state's 2025 income tax rate on top of federal — local city taxes (e.g. NYC, Philadelphia) and progressive within-state brackets are not modelled.They do not account for credits, alternative minimum tax, the Net Investment Income Tax, foreign income, R&D credits, or your personal circumstances. Always confirm with a licensed CPA, chartered accountant, or registered tax agent before filing.