Being self-employed has clear advantages: freedom, flexibility, and control over your work. But it also comes with a big question—how much do you really take home after taxes and expenses? Unlike W-2 employees who see withholdings automatically on their paycheck, freelancers and small business owners are responsible for calculating their own net pay.
Your true take-home pay depends on more than just gross revenue. You’ll need to subtract business expenses, self-employment tax, federal and state income taxes, and account for deductions like health insurance or retirement contributions. In this guide, we’ll walk through exactly how to calculate your take-home pay if you’re self-employed, with examples and tools you can use right away.
Why this matters
When you’re self-employed, figuring out your paycheck isn’t as simple as looking at a W-2. You set your own income, track your own expenses, and pay your own taxes. That means your “take-home pay” is what’s left after subtracting expenses, self-employment tax, federal and state income tax, and any contributions you make to retirement or health insurance.
In this guide, you’ll learn step by step how to calculate your net pay as a freelancer, contractor, or small business owner.
What does take-home pay mean for self-employed people?
For employees, take-home pay is their gross wages minus withholdings. For the self-employed, it looks different because you’re both the employer and the employee.
Formula:Gross Revenue
– Business Expenses
= Net Business Income
– Self-Employment Tax
– Federal and State Income Taxes
– Retirement and Health Contributions
= Take-Home Pay
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Step-by-step: how to calculate your self-employed paycheck
1. Add up your gross income
Start with all the money you earn from clients or projects before expenses.
Example: $80,000 in freelance invoices.
2. Subtract business expenses
Deduct equipment, software, internet, office costs, travel, and other legitimate business expenses.
Example: $80,000 – $20,000 expenses = $60,000 net income.
3. Calculate self-employment tax
You must pay 15.3% SE tax (12.4% Social Security + 2.9% Medicare). The IRS only taxes 92.35% of your net income.
Formula:Net Income × 92.35% × 15.3%
Example: $60,000 × 0.9235 × 0.153 ≈ $8,478.
4. Apply federal income tax brackets
Federal taxes depend on your filing status. IRS Self-Employed Tax Center
tax, you apply 2025 tax brackets to your adjusted income.
Example: $60,000 – ($8,478 ÷ 2) = ~$55,760 taxable income.
5. Subtract state and local taxes
- No state income tax: Texas, Florida.
- Progressive tax states: California, New York.
- City taxes: NYC, Philadelphia, Detroit.
This can range from 0% to over 10% depending on location.
6. Factor in retirement and health deductions
Contributions to a SEP IRA, Solo 401(k), or HSA reduce your taxable income. Health insurance premiums may also be deductible if you pay them yourself.
7. Estimate final take-home pay
After subtracting SE tax, federal tax, state tax, and other deductions, you’ll arrive at your net pay.
Simplified Example:
- Gross: $80,000
- Expenses: $20,000 → Net: $60,000
- SE Tax: $8,478
- Federal Tax: ~$6,500
- State Tax (CA example): ~$4,000
- Estimated Take-Home: ~$41,000
Planning for quarterly estimated taxes
Because no one withholds taxes for you, you need to pay the IRS quarterly. Use Form 1040-ES to make these payments. A safe rule of thumb is to set aside 25–30% of your net income each month for taxes.
Business structure and take-home pay
Your entity type affects your paycheck:
- Sole proprietor/LLC (default): Pay full 15.3% SE tax.
- S-Corp: You may reduce SE tax by splitting income into salary + distributions.
- Partnership/LLC taxed as partnership: Similar to sole prop unless electing S-Corp status.
FAQs
How do I calculate take-home pay if I’m self-employed?
Subtract business expenses, SE tax, federal and state income tax, and deductions from your gross income.
What is the self-employment tax rate in 2025?
15.3% of net earnings, after applying the 92.35% rule.
How much should I set aside for taxes as a freelancer?
Most tax advisors suggest 25–30% of net income.
Can I deduct health insurance premiums?
Yes, if you pay for your own plan.
Do state and city taxes apply to self-employed income?
Yes, unless you live in a no-tax state like Texas or Florida.
What is the 92.35% rule?
It’s the IRS adjustment that ensures you can deduct the “employer half” of self-employment tax.
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Bettye is the creator of CityPaycheckCalculator.com, a resource designed to help individuals quickly and accurately estimate their take-home pay across U.S. cities. With a strong focus on clarity, accuracy, and user experience, Bettye provides reliable paycheck calculators and helpful insights to support smarter financial decisions. Her mission is to make complex payroll and tax information simple and accessible for everyone.