Freelance vs Employed Net Income Calculator
Comparing a freelance income to an employee salary on a gross basis is misleading. Freelancers pay 15.3% self-employment tax, buy their own health insurance, and cover overhead that employees receive free. This calculator shows the true net take-home for both arrangements so you can make a fair comparison. Enter your employee salary and benefits on one side, and your freelance gross income and costs on the other.
Employee
Freelance
Freelance vs employed net income formula
Employee Net = Salary x (1 - Income Tax Rate) + Benefits Value - (Salary x 0.0765 FICA)
Freelance Net SE Income = Gross Revenue - Overhead - Health Insurance
SE Tax = Net SE Income x 0.9235 x 0.153
SE Tax Deduction = SE Tax / 2
Taxable Income = Net SE Income - SE Tax Deduction
Freelance Net = Taxable Income x (1 - Income Tax Rate) - (SE Tax / 2)
The SE tax rate of 15.3% applies to 92.35% of net self-employment income (the 0.9235 factor accounts for the deduction of the employer-equivalent half of SE tax), per IRS Schedule SE. The employee FICA deduction is 7.65% (employee share only).
When does freelancing pay more?
- Freelancing pays more net of taxes when gross revenue exceeds the employee salary by at least 25 to 40 percent, depending on benefit costs and overhead.
- High-overhead freelancers (office rental, employees, equipment) need an even larger gross premium over an employee salary to break even.
- Self-employed individuals can reduce taxable income through solo 401(k) or SEP-IRA contributions (up to 25% of net self-employment income), providing a tax advantage not available to most employees at the same dollar contribution level.
- Non-financial factors: autonomy, flexibility, and client diversification are real advantages of freelancing that the net income comparison does not capture.
Freelance vs employed: frequently asked questions
Why do freelancers need to earn more than employees to break even?
Freelancers pay both the employer and employee portions of FICA taxes (15.3% total on net self-employment income vs 7.65% for employees). They also pay for their own health insurance, retirement contributions without employer match, and business overhead. The IRS Schedule SE self-employment tax applies to 92.35% of net self-employment income.
What is the self-employment tax rate?
The self-employment (SE) tax rate is 15.3% of 92.35% of net self-employment earnings up to the Social Security wage base ($168,600 in 2024), and 2.9% (Medicare only) above that. Self-employed individuals can deduct one-half of SE tax paid when calculating adjusted gross income, per IRS Publication 334.
How do I calculate the value of employer benefits to compare fairly?
Estimate the cost to replace each benefit if self-employed: health insurance family plan averages $22,463/year (KFF 2023 Employer Health Benefits Survey); a 4% 401k match on a $80,000 salary is $3,200/year; paid leave of 15 days is worth roughly 4.1% of salary. Total these to find the benefits value you need to replace.
What overhead costs should freelancers include?
Common freelance overhead: accounting and tax preparation ($500 to $2,000/year), professional liability insurance ($500 to $3,000/year), software subscriptions, home office, equipment depreciation, and professional development. The IRS allows deduction of ordinary and necessary business expenses per Section 162 of the Internal Revenue Code.
What hourly rate does a freelancer need to match an employee salary?
The standard formula is: Required Rate = (Target Salary + Benefits + Overhead + SE Tax) / Billable Hours. Billable hours are typically 60 to 75% of total working hours. This calculator derives the equivalent needed freelance income rather than an hourly rate; divide by your billable hours to find your minimum hourly rate.
Official sources
- IRS, Self-Employment Tax (Schedule SE): irs.gov self-employment tax.
- IRS Publication 334, Tax Guide for Small Business: irs.gov/publications/p334.
- Social Security Administration, FICA rates: ssa.gov/oact/cola/cbb.html.
Reviewed by the CalculatorHub team, edited by James Graham, 14 June 2026. See our methodology.