Why your effective tax rate is higher than salaried friends
Employees split payroll tax with their employer. Independents pay both halves before income tax even kicks in. On a $90k US net profit, you'll owe ~$12,700 in self-employment tax before federal income tax even enters the picture.
- US self-employment tax (2025): 15.3% on the first $176,100 of net SE earnings, 2.9% Medicare above (+0.9% Additional Medicare > $200k single).
- UK Class 4 NIC: 6% on profits £12,570–£50,270, 2% above.
- Canada CPP self-employed: 11.4% to $68,500, plus CPP2 to $73,200.
- Australia: no separate SE tax, but no employer super either.
State income tax can be your biggest line — or your smallest
Federal tax is the same wherever you live in the US, but state income tax can swing your effective rate by 10+ points. We layer all 50 states (plus DC) on top of the federal estimate using 2025 published rates, so a freelancer in California (9.3% bracket) and one in Texas (0%) get an honest, location-aware number.
- No state income tax: AK, FL, NV, NH, SD, TN, TX, WA, WY.
- Flat-rate states (2025): AZ 2.5%, CO 4.4%, GA 5.39%, IL 4.95%, IN 3.0%, KY 4.0%, MI 4.25%, NC 4.25%, PA 3.07%, UT 4.55%.
- Highest top brackets (2025): CA 13.3%, HI 11%, NJ 10.75%, NY 10.9% (NYC adds another 3–4%), OR 9.9%, MN 9.85%.
- Local taxes (NYC, Philadelphia, many OH/PA cities) add 1–4% on top — confirm with your accountant.
Quarterly estimated payments are not optional
The IRS, HMRC, CRA, and ATO all want you to pre-pay throughout the year. Underpayment triggers penalties and interest that compound silently. As a rule of thumb, set aside 25–35% of every invoice in a separate account from day one — closer to 35–45% if you live in a high-tax state like CA, NY, or NJ.
Sales tax / VAT is never your money
When you collect sales tax or VAT at checkout, treat it as a liability the moment it hits your bank. Auto-sweep it into a separate account weekly. The most common failure mode for a growing store or SaaS is spending sales-tax cash, then owing it as a lump sum on a 30-day filing.
When to incorporate (US S-corp, UK Ltd)
Above ~$70–80k US profit, an S-corp election can shave 5–10% off your tax bill by splitting wages and distributions. UK freelancers often go Ltd above ~£40–50k profit. The savings are real, but so is the admin cost — always compare net-of-accountant numbers.
Self-employment 'payroll' tax: US vs UK vs CA vs AU (2025)
| Region | Equivalent tax | Rate | Cap | |
|---|---|---|---|---|
| United States | SE tax (SS + Medicare) | 15.3% / 2.9% above cap | $176,100 (SS portion, 2025) | |
| United Kingdom | Class 4 NIC | 6% / 2% above | Above £50,270 | |
| Canada | CPP self-employed (both halves) | 11.4% + CPP2 ~8% | $68,500 / $73,200 | |
| Australia | No SE tax (you fund super yourself) | — | — |
Things people ask
Are these calculators official tax filings?+
No. They're educational estimators using current 2025 published brackets and standard deductions. State / provincial / Scottish / local rates and individual deductions vary. Always confirm with a qualified tax professional before filing.
Do these calculators include state income tax?+
Yes — for the US, you can pick from any of the 50 states (plus DC). We layer that state's 2025 income tax rate on top of the federal estimate. We use a representative effective rate per state; high-tax cities like NYC and Philadelphia add more on top.
How often are the rates updated?+
Federal brackets, state rates, and SS wage base are reviewed each tax year. The current build uses 2025 US federal + state, 2025/26 UK and AU, 2025 Canada figures.
Do I owe tax on free products from sponsors?+
Yes — in every major jurisdiction, free product or service received in exchange for content has a fair-market value that counts as income. Report the retail price.
What % of my income should I set aside for taxes?+
Most independent operators reserve 25–35% of every invoice (35–45% in CA/NY/NJ/OR/HI). Use the relevant calculator with your actual state and numbers, then round up.
Does the SaaS nexus calculator cover EU VAT?+
Not yet. EU/UK VAT for digital services has different rules (OSS / IOSS, customer-location based, no minimum threshold for cross-border B2C). A dedicated VAT calculator is on the roadmap.