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FreelanceVsFulltime

How It Works

This page explains the calculation methodology behind FreelanceVsFulltime's Freelance vs Full-Time comparison. All tax figures are based on 2025 IRS publications and publicly available state tax schedules. This calculator provides estimates for informational purposes only — not tax advice.

1. Self-Employment (SE) Tax

Freelancers pay both the employee and employer portions of Social Security and Medicare taxes, collectively called self-employment tax. The calculation follows IRS Publication 334 and Schedule SE.

Calculation Steps

  1. SE base: Net self-employment income × 92.35% (reflects the employer-equivalent deduction)
  2. Social Security: SE base × 12.4%, capped at the 2025 wage base of $168,600
  3. Medicare: SE base × 2.9% (no cap)
  4. Additional Medicare surtax: 0.9% on SE base above $200,000 (single) or $250,000 (married filing jointly) — per IRC §3103 / IRS Notice 2013-45
  5. Deductible half: 50% of total SE tax is deductible from gross income when calculating adjusted gross income (AGI) — IRC §164(f)

Source: IRS Publication 334, Schedule SE (Form 1040)

2. Federal Income Tax

Federal income tax is calculated using 2025 progressive brackets from IRS Revenue Procedure 2024-40. Taxable income is gross income minus the standard deduction and applicable deductions.

2025 Standard Deductions

Filing Status Amount
Single / Married Filing Separately $14,600
Married Filing Jointly $29,200
Head of Household $21,900

2025 Federal Tax Brackets — Single Filer

Taxable Income Rate
$0 – $11,92510%
$11,925 – $48,47512%
$48,475 – $103,35022%
$103,350 – $197,30024%
$197,300+37%

Married filing jointly and head of household brackets are also supported — thresholds differ. See IRS Rev. Proc. 2024-40 for full bracket tables.

3. Freelance-Specific Deductions

In addition to the standard deduction, self-employed individuals may qualify for the following above-the-line deductions that reduce AGI:

Self-Employed Health Insurance Deduction IRC §162(l)

Self-employed individuals can deduct 100% of health insurance premiums paid for themselves and their family from gross income. The deduction cannot exceed net self-employment income.

Qualified Business Income (QBI) Deduction IRC §199A

Eligible self-employed taxpayers can deduct up to 20% of qualified business income, subject to income thresholds and business type restrictions. This calculator applies the deduction at 20% of net business income where the input exceeds the standard deduction — without applying the higher-income phase-out rules (which depend on wage/capital factors not captured in this tool).

Business Expenses

Ordinary and necessary business expenses (home office, equipment, software, professional services, etc.) reduce net self-employment income before all other calculations. Entered as an annual dollar amount in the calculator.

4. Full-Time Total Compensation

Full-time compensation extends beyond base salary. The calculator adds the following employer-provided benefits to gross salary to compute total compensation:

Benefit How Valued
Employer 401(k) match Percentage of salary matched by employer (e.g. 4% of $100K = $4,000/year). 2025 employee deferral limit: $23,500 per IRS Notice 2024-80.
Employer health insurance Annual employer premium contribution entered directly. National average employer contribution is approximately $7,000–$8,000/year for single coverage (KFF Employer Health Benefits Survey 2024).
Paid time off (PTO) Monetized as: (Annual salary ÷ 260 working days) × PTO days per year. Represents the salary-equivalent value of paid leave.

5. State Income Tax

State income tax is approximated using a single effective rate per state, calibrated around $100,000 of taxable income. All 50 states and Washington DC are supported.

No state income tax (0%): Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, Wyoming

Notable rates (effective at ~$100K): California 8.3%, Oregon 8.2%, Hawaii 8.2%, DC 8.5%, New York 6.0%

State rates are approximations based on publicly available 2024 tax schedules. They may not reflect local taxes, credits, or deductions specific to your situation. Sources: Individual state Department of Revenue publications.

6. Break-Even Hourly Rate

The break-even hourly rate is the freelance rate at which after-tax net income equals the full-time after-tax net income (including monetized benefits).

The calculator solves iteratively:

  1. Compute full-time net income (salary + benefits − taxes)
  2. Estimate freelance gross required to produce the same net income, accounting for SE tax, deductions, and business expenses
  3. Divide by annual billable hours (hours/week × 50 billable weeks)

Rates above the break-even are financially advantageous for freelancing; rates below favor full-time employment on a net-income basis.

7. Limitations & Disclaimer

For informational purposes only. Not tax advice.

  • Tax rules are simplified. The QBI phase-out at higher incomes (over ~$197K for single filers) is not modeled. Certain SSTB (specified service trade or business) restrictions are not applied.
  • State tax rates are effective-rate approximations, not precise marginal calculations. Local/city income taxes are not included.
  • FICA for full-time employees (6.2% SS + 1.45% Medicare on wages) is included in the full-time tax calculation.
  • This calculator does not account for AMT (Alternative Minimum Tax), capital gains, rental income, or other income sources.
  • Tax rates reflect 2025 IRS figures and may change with future legislation.

Please consult a qualified CPA or tax professional for advice specific to your situation.

IRS & Regulatory Sources

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