Guides · Self-employment

Self-employment tax basics

The TaxMetria calculator models employment income — a single W-2 or PAYE paycheck. It does not yet model self-employment, contractor work, freelance income, or any business income. Self-employment has its own tax regime in both the US and UK, on top of regular income tax. This page walks through what is excluded and why, so you know what the gap is when you self-employed.

Why the calculator excludes self-employment

Three reasons:

  1. Employment income is the common case. Most users checking their take-home pay are salaried employees. The W-2 / PAYE math is what 80%+ of the addressable audience needs. Self-employment is a v2 feature.
  2. SE tax is structurally different. An employee splits Social Security / NI with the employer. A self-employed person pays both halves — the "employer" half and the "employee" half. The math is the same shape but the flows are different, and the deduction rules (employer-equivalent portion, profit vs gross, expense deductibility) require a separate engine.
  3. Deductions vary by business type. A sole proprietor's deductible expenses are different from an LLC's, different from an S-corp shareholder's reasonable salary, different from a UK limited company's corporation tax position. Modeling that correctly is a research project of its own.

The calculator explicitly tells you this on the assumptions page, and again on each country calculator page. Self-employment income is a known limitation, not a silent gap.

United States — Self-Employment Tax

Self-Employment Tax (SE tax) is the self-employed person's version of FICA. It has two components:

  • Social Security (OASDI) — 12.4% on net earnings up to the wage base ($184,500 for 2026, per Rev. Proc. 2025-32). The employee half (6.2%) plus the employer half (6.2%) combined.
  • Medicare (HI) — 2.9% on all net earnings (no cap). Combined 1.45% + 1.45%. Above $200,000 of net earnings, the Additional Medicare Tax of 0.9% also applies.

Combined, that is 15.3% on the first $184,500 and 2.9% above that (plus 0.9% Additional Medicare if applicable).

But it is not 15.3% of gross receipts. SE tax is calculated on net earnings from self-employment — Schedule C profit after deducting ordinary and necessary business expenses. SE tax also gets a deduction: you multiply net earnings by 92.35% before applying the rates, to reflect the fact that an employer's share of FICA would not have been taxable wages to the employee.

Concretely:

  1. Take Schedule C net profit.
  2. Multiply by 92.35%.
  3. Apply 15.3% up to the Social Security wage base.
  4. Apply 2.9% (and 0.9% if applicable) above.
  5. The result is your SE tax liability.
  6. Half of the SE tax (the "employer-equivalent" half) is deductible from gross income on Form 1040.

Then, on top of SE tax, the regular federal income tax applies to the SE income (less the half-of-SE-tax deduction). State income tax applies on top of that, where applicable.

US quarterly estimated payments

W-2 employees have tax withheld from each paycheck. The self-employed do not — they pay quarterly estimated tax via Form 1040-ES, due:

  • Q1: April 15
  • Q2: June 15
  • Q3: September 15
  • Q4: January 15 (of the following year)

The IRS expects you to pay either 90% of the current year's total tax or 100% of the prior year's total tax (110% if AGI exceeded $150,000) via these four payments. Underpaying triggers an underpayment penalty, calculated quarter by quarter.

That is the structural reason the self-employed should set aside ~25-35% of net earnings for tax. It is not one bill, it is four, and the failure mode is silent — the IRS does not mail you a reminder.

United Kingdom — Self Assessment

The UK's self-employment regime is different in spirit and in detail. There is no quarterly federal-style payment, but there is a yearly filing with two payments on account.

If you are self-employed in the UK, you register for Self Assessment with HMRC and file an SA100 (or SA104 if it is a supplementary form) plus a Self-Assessment tax return detailing income from self-employment, partnerships, rental, and any other non-PAYE source.

The deadline is 31 January after the end of the tax year. Filing on paper by 31 October allows HMRC to calculate the bill for you; filing online by 31 January requires you to calculate it yourself.

On top of income tax on the profit, you pay Class 2 and Class 4 National Insurance.

UK National Insurance for the self-employed

Two classes of NI apply to self-employed people:

  • Class 2 — a flat weekly contribution of £3.45/week for 2024/25 (HMRC has frozen the rate while reforms are phased in; the published long-term rate has been £3.45 since 2021/22). Payable on profits above the Small Profits Threshold (£6,725 for 2024/25). Class 2 is voluntary below the threshold if you want to maintain State Pension entitlement.
  • Class 4 — a percentage of annual profits. For 2024/25: 6% on profits between £12,570 and £50,270, and 2% on profits above £50,270. Class 4 will be reformed alongside the merger of NICs into a single rate, scheduled for 2028 at the earliest — see the HMRC NI rates and allowances page for the latest.

Class 4 NI is roughly equivalent to the "employer" half of Class 1 NI (the half that an employer would have paid for an employee). Class 2 is a smaller flat-rate contribution that buys State Pension entitlement.

Payments on account

Each 31 January, two payments are due:

  1. The balancing payment for the prior tax year — the difference between what you actually owed and what you already paid on account.
  2. The first payment on account for the new tax year — half of the prior year's bill, paid in advance. The second half is due 31 July.

So the self-employed in the UK effectively make three tax payments a year: 31 January (balancing + first account), 31 July (second account), plus quarterly bookkeeping. It is more predictable than the US quarterly system, but the cash-flow timing matters — a £50,000 tax bill at the end of January is a real challenge if you have not set money aside.

What this does to the marginal rate

Stacking SE tax + income tax on the US side, the marginal rate on a self-employed single filer with $80,000 of net earnings is not 22% (the federal bracket). It is:

  • 15.3% SE tax (Social Security + Medicare, on income up to the wage base)
  • 22% federal income tax bracket
  • Half of SE tax is deductible above-the-line, lowering the federal bracket slightly

Adding those (without state tax): roughly 36-37% effective marginal rate. With state tax in California or New York, the combined marginal rate pushes above 50% in some bands.

On the UK side, a self-employed person earning £60,000 profits sees 20% basic-rate income tax + 6% Class 4 NI = 26% marginal rate in the basic-rate band. Above £50,270, Class 4 drops to 2%, so the marginal is closer to 42% in the higher-rate band (40% income tax + 2% Class 4).

Both are higher than the equivalent employee rate, but the self-employed also get deductions employees do not (half of US SE tax, business expenses, pension contributions up to £60,000/year in the UK). The math is more complex than a single line item.

When self-employment ships

The plan in the original Batch 1 approval pack flagged self-employment as a v2 priority. Specifics:

  • US schedule C — net earnings calculation, Schedule SE, half-of-SE-tax deduction, federal income tax on net earnings. Quarter-by-quarter estimated payment workflow is a UX feature, not just a calc feature.
  • UK Self Assessment — Class 2 + Class 4 NI, annual Self Assessment workflow, payments on account timing. Reasonable expense deduction by business type is its own scope question.

These ship when the engine, fact registry, and tests can be built to the same audit standard as the v1 baseline. Until then, use the calculator for the employment piece and a dedicated self-employment tool (HMRC's Self Assessment calculator, IRS Direct Pay, or a qualified accountant) for the rest.