Self-Employment Tax and Estimated Payments
Self-employment tax is the part of the US system that most reliably catches out first-time contractors. It is separate from income tax, it is charged at a fixed statutory rate of 15.3%, and no employer withholds it. Combined with income tax and the requirement to pay in quarterly instalments, a profitable first year as a contractor can produce a bill far larger than expected — plus penalties for not having paid it along the way.
Who this affects
- Independent contractors and freelancers paid on a 1099
- Owners of single-member LLCs and sole proprietorships
- Anyone with side income alongside a W-2 job
- Korean nationals doing US-source contract work
15.3% is on top of income tax, not instead of it
The rate covers Social Security and Medicare — the halves an employer and employee would otherwise split. Being self-employed means carrying both. Income tax is then calculated separately on the same profit.
Quarterly estimated payments are the default expectation
Because nothing is withheld, the system expects payment through the year in instalments. Waiting until April and paying in full still attracts an underpayment penalty, calculated as though you should have paid as you went.
It is charged on profit, so expenses matter twice
Legitimate business expenses reduce both income tax and self-employment tax. That double effect makes disciplined expense records considerably more valuable to a contractor than to an employee.
A totalisation agreement can prevent paying twice
Where you are also contributing to the Korean national pension on the same work, the US–Korea social security agreement is designed to stop both systems charging you. Claiming it requires a coverage certificate rather than happening automatically.
Common questions
I only made a little on the side. Does this apply?
Self-employment tax starts at a low threshold of net earnings, so modest side income can still trigger it even when income tax is minimal.
What happens if I skip quarterly payments?
You can still pay everything at filing, but an underpayment penalty is generally added. It is charged as interest for paying late through the year rather than as a fine.
I pay into the Korean national pension. Do I owe US self-employment tax too?
The US–Korea totalisation agreement exists to prevent exactly that, but it must be claimed with a certificate of coverage. Without one, both systems will assess you.
Official sources
General information, not tax advice. Rules and thresholds change, and how they apply depends on your circumstances — confirm with a licensed professional before acting.