If you’re self-employed, figuring out your taxes can feel overwhelming. Unlike traditional employees, no one is withholding state or federal taxes from your paycheck—you’re responsible for everything. The good news is, once you understand the steps, calculating state taxes becomes much easier. Let’s break it down clearly, with examples and practical tips.
Quick Answer
To calculate state taxes as a self-employed person:
- Find your net self-employment income (income minus business expenses).
- Apply the federal self-employment tax formula.
- Look up your state’s income tax rate or rules.
- Combine both and pay them as quarterly estimated taxes.
Step 1: Figure Out Your Net Self-Employment Income
Start with your total earnings from freelancing, contracting, or small business work. Subtract deductible business expenses—things like software, home office costs, travel, and professional tools.
Example:
- Gross income: $60,000
- Expenses: $15,000
- Net income = $45,000
This number is the foundation for both federal and state taxes.
Step 2: Calculate Federal Self-Employment Tax
Self-employment tax covers Social Security and Medicare. The formula is:
Net income × 92.35% × 15.3%
For our $45,000 example:
- $45,000 × 92.35% = $41,558
- $41,558 × 15.3% ≈ $6,350 federal self-employment tax
Half of this is deductible when you file your federal return.
Step 3: Apply Your State’s Income Tax Rules
Now, layer on your state’s requirements. This varies widely:
- No income tax states: Texas, Florida, Nevada, Washington. You’ll only pay federal SE tax.
- Flat tax states: Pennsylvania (3.07%), Illinois (4.95%). Easy to calculate—just multiply by net income.
- Progressive tax states: California, New York, New Jersey. Rates rise with income, so you’ll apply brackets.
- Special cases: Washington has no income tax but charges a Business & Occupation (B&O) tax on gross revenue.
Example (Pennsylvania, flat tax):
- Net income: $45,000
- PA tax = 3.07% × $45,000 = $1,381 state tax
Step 4: Combine Federal and State Taxes
Add the amounts together:
- Federal SE tax: $6,350
- Pennsylvania state tax: $1,381
- Total = $7,731 owed
This doesn’t include federal income tax, which you also need to calculate separately.
Step 5: Pay Estimated Quarterly Taxes
Since there’s no employer withholding, you must send estimated payments four times a year:
- April 15
- June 15
- September 15
- January 15 (following year)
You’ll pay both federal (via IRS Form 1040-ES) and your state’s quarterly system.
Common Questions (FAQs)
Do I pay both state and federal taxes if I’m self-employed?
Yes—federal self-employment tax is mandatory, and state income tax applies if your state has one.
Which states don’t charge income tax?
Texas, Florida, Alaska, Nevada, South Dakota, Washington, Wyoming.
How do I estimate quarterly state tax?
Take last year’s total state tax, divide by four, and pay in equal installments—or use your current income projections.
What if I work in multiple states?
You may owe taxes in each state where you earn money. Check for reciprocity agreements to avoid double taxation.
Do LLCs or S-Corps change the calculation?
Yes—depending on structure, some taxes pass through differently. Many states treat single-member LLCs like sole proprietors.
Helpful Resources
- IRS Self-Employment Tax Overview
- Your State Department of Revenue
- IRS Form 1040-ES for Estimated Taxes
Robert is the creator of StateTaxesEstimator.com, a trusted resource dedicated to helping users accurately estimate their state taxes. With a strong focus on clarity and precision, Robert combines expert knowledge with practical tools to simplify complex tax calculations. His mission is to empower individuals and businesses to make informed financial decisions with confidence and ease.