How self-employment tax is calculated
Self-employed people pay more than just income tax. Unlike employees, whose employer covers half of payroll/social contributions, self-employed people pay both halves themselves. The mechanics differ between the US and UK.
United States. Tax Year 2025
Step 1: Net SE earnings. Multiply your net profit by 92.35% (= 1 − 7.65%). This factor mirrors the employer share of FICA: an employee only pays 7.65%, because the employer covers the other half. A self-employed person pays both, but only on 92.35% of profit.
Step 2: SE tax. Apply 15.3% to net SE earnings:
- Social Security: 12.4%, capped at the SS wage base ($176,100 for 2025)
- Medicare: 2.9%, no cap
Step 3: Half-SE-tax deduction. Deduct half of your SE tax from gross income before computing federal income tax. This reduces your Adjusted Gross Income (AGI) and lowers the income tax base.
Step 4: Federal income tax. After subtracting the half-SE deduction and the standard deduction ($15,750 for single filers in 2025), apply the progressive federal brackets (10%–37%).
Source: IRS Topic 554: Self-Employment Tax
United Kingdom. Tax Year 2025/26
Income tax. Self-employed people pay income tax on net trading profits using the same Personal Allowance (£12,570) and bands as employees: 20% basic rate up to £50,270, 40% higher rate up to £125,140, 45% additional rate above that. The Personal Allowance tapers by £1 per £2 of income above £100,000.
Class 4 National Insurance. This is the self-employed equivalent of employee NI:
- 6% on profits between the Lower Profits Limit (£12,570) and the Upper Profits Limit (£50,270)
- 2% on profits above £50,270
Class 2 NI. The mandatory Class 2 flat charge was abolished from 6 April 2024. If your profits are above the Small Profits Threshold (£6,845 in 2025/26), your NI record and state pension entitlement are protected automatically. There is no cash cost.
Source: GOV.UK: Self-employed National Insurance rates
Worked example
US: single filer, $60,000 net profit (2025). Net SE earnings: $60,000 × 92.35% = $55,410. SE tax: $55,410 × 15.3% = $8,477.73 (Social Security $6,870.84 + Medicare $1,606.89). Half-SE deduction: $4,238.87. Taxable income: $60,000 − $4,238.87 − $15,750 = $40,011.13. Federal income tax: $4,562.82. Net after federal taxes: $46,959.45.
UK: sole trader, £50,000 profit (2025/26). Personal Allowance £12,570. Taxable income: £37,430, all within the basic rate band. Income tax: £7,486 (20% × £37,430). Class 4 NI: £2,245.80 (6% × £37,430, all within LPL–UPL band). Class 2 NI: £0 (abolished). Total tax £9,731.80. Net income: £40,268.20.
What this calculator excludes
This is a national-level estimator only.
| Country | Excluded items |
|---|---|
| United States | State and local income tax; Additional Medicare Tax (0.9% above $200k, single); estimated-tax payment timing (quarterly instalments); business expense deductions beyond your net profit input; OBBBA supplemental deductions (tips, overtime) |
| United Kingdom | Scottish income tax bands (Scotland has separate rates); payments on account (advance tax payments to HMRC); allowable business expense deductions beyond your net profit input; voluntary Class 2 NI for those below the Small Profits Threshold |
This is an estimate, not tax advice. Tax rules change; always verify your position with the relevant authority before filing.