01Start with profit, not the invoice total
Independent contractors pay both shares of Social Security and Medicare through self-employment tax. The regular calculation applies 12.4% Social Security and 2.9% Medicare to 92.35% of net business profit. In 2026 the Social Security part stops at the $184,500 individual wage base; Medicare has no cap. If 92.35% of profit is below $400, regular SE tax is zero.
Your own W-2 wages use the Social Security wage base before SE income, but a spouse’s wages do not reduce your individual base. For the 0.9% Additional Medicare Tax, Medicare wages and nonnegative SE income share the filing-status threshold: $200,000 single or head of household, $250,000 joint and $125,000 separate. Investment income is not a Medicare wage.
Half of regular SE tax is an above-the-line deduction. It reduces income tax, not SE tax. The calculator also isolates the incremental tax caused by each offer: baseline tax on other household income is not charged against the new job or business.
A 15.3% headline is not a universal effective rate. Business deductions, the $400 threshold, other W-2 wages and the Social Security cap can all change the result.
02QBI needs more than a 20% toggle
The 2026 taxable-income thresholds before QBI are $201,750 for single and head of household, $201,775 for married filing separately and $403,500 for married filing jointly. Phase-in ranges are $75,000 for separate and other nonjoint returns and $150,000 for joint returns. Below the threshold, eligible specified-service and ordinary businesses can both use the 20% component, subject to the overall taxable-income limit.
Above the threshold, an ordinary business may be limited by the greater of 50% of qualified W-2 wages or 25% of those wages plus 2.5% of qualified-property UBIA. Inside the range, that limit phases in. For a specified service trade or business, QBI, wages and UBIA are first reduced by the applicable percentage, then the wage-limit phase-in applies. Above the range, the SSTB component is zero.
New for 2026, a $400 minimum deduction can apply when the regular result is smaller and aggregate active qualified business income is at least $1,000 from businesses in which the taxpayer materially participates. It is a deduction, not a refundable credit. Half-SE, self-employed health insurance and deductible retirement contributions attributable to the business reduce QBI.
- Qualified staff wages belong in business expenses and, separately, in the QBI wage input; the second input does not deduct them again.
- UBIA is a tax-basis input for the QBI limitation, not a new cash expense.
- S-corp owner salary is not QBI, but it can count toward the qualified W-2 wage limit.
- REIT/PTP components, aggregation, loss carryforwards and the net-capital-gain adjustment are outside this one-business estimate.
03Retirement is still your money
Annual after-tax value and spendable cash answer different questions. A deductible retirement contribution reduces current cash and usually current tax, but it also creates an asset you still own. The annual-value comparison therefore counts that contribution, while the spendable-cash figure subtracts it. Employer match and other entered W-2 benefits remain visible in the W-2 package.
For a self-employed SEP, a 25% plan contribution rate becomes an effective 20% of adjusted net self-employment earnings after the deductible half of SE tax. The 2026 annual-additions limit is $72,000. A Solo 401(k) can combine employer profit sharing with a $24,500 elective deferral, plus an $8,000 catch-up from age 50 or an $11,250 catch-up at ages 60 through 63, subject to earnings and aggregate limits.
An S-corp uses W-2 salary for the employer-contribution calculation. Employee deferrals reduce spendable cash but remain in Box 1 only through the applicable payroll rules; employer contributions reduce pass-through profit. The calculator allocates the entered Solo 401(k) amount to employee deferrals first so the cash ledger can close.
04Price unbilled time once
Hourly mode multiplies rate × billable hours per week × billable weeks per year. Use billable hours for client work only; administration, proposals and marketing are not billable. Reduce weeks for vacation, holidays, sickness and gaps between engagements. Do not also hide the same unpaid time inside an overhead expense.
The break-even output solves the complete after-tax comparison, then divides required annual revenue by annual billable hours. That is more useful than a universal 1.5× rule because health coverage, benefits, state tax, deductions and the QBI phase-in can move the answer in opposite directions.
Employer benefits and paid time off belong in the W-2 package value. Contractor billable time belongs in the revenue build. Keeping those inputs separate avoids double-counting unpaid leave.
05An S-corp is a sensitivity, not a slogan
An S-corp pays reasonable W-2 compensation to a shareholder-employee before non-wage distributions. There is no IRS-approved 60/40 rule or universal profit threshold. Comparable pay, duties, experience, time devoted and the business’s facts support the salary assumption; an unreasonably low salary can be reclassified.
The model computes employer and employee FICA, 0.6% FUTA on the first $7,000 of salary, entered compliance costs and entered state payroll/entity taxes. Greater-than-2% shareholder health premiums are treated as Box 1 wages but not FICA wages, with the eligible above-line deduction. QBI, federal and state income tax, retirement and Additional Medicare are then recomputed for the structure.
Judge the net advantage over sole proprietorship, not the payroll-tax saving alone. Payroll service, Form 1120-S preparation, bookkeeping, state entity taxes and a changed QBI deduction can reverse the apparent benefit. Pass-through entity tax elections, reasonable-compensation advice and every state entity regime require separate analysis.
06Where this estimate stops
Federal ordinary income tax uses the 2026 brackets and standard deduction, with no credits, itemized deductions, preferential capital-gain rates, NIIT or tip/overtime/senior deductions. State tax uses the registry’s effective flat estimate and does not reproduce every bracket, local tax or credit.
A business loss is allowed to reduce current taxable income, and its incremental federal and state effect is shown. That assumes the loss is currently usable against other income. At-risk, passive, basis, excess-business-loss, NOL and QBI carryforward rules can defer or change that value. Estimated payments are annual modeled tax divided by four, not a penalty-safe-harbor determination or withholding reconciliation.