“Should I go freelance?” is as much a tax question as a lifestyle one. The same headline number produces different take-home pay depending on whether it’s a salary or self-employed profit, and the direction differs by country. Freelancers in the US and Canada pay extra social security contributions. In the UK and Australia they often pay slightly less tax than employees. Here’s how it works in each country, and how to price your work so freelancing actually pays.
The comparison at a glance
| Country | Income | Employee take-home | Freelancer take-home | Salary equal to the freelancer |
|---|---|---|---|---|
| United States (Texas) | $100,000 | $79,180 | $77,635 | $97,804 |
| United States (California) | $100,000 | $72,810 | $73,222 | $100,690 |
| United Kingdom (England) | £60,000 | £45,357 | £46,111 | £61,300 |
| Canada (Ontario) | $100,000 | $74,206 | $71,662 | $96,347 |
| Australia | $100,000 | $77,480 | $78,480 | $101,471 |
United States
US freelancers pay self-employment tax of 15.3% on 92.35% of profit, covering both halves of Social Security and Medicare, against 7.65% for employees. Two things soften it: half of SE tax is deductible, and most freelancers get the 20% QBI deduction. On $100,000 the freelancer in Texas still ends up with less than an employee on the same salary. Read the full 1099 tax guide.
United Kingdom
Sole traders pay the same Income Tax as employees but Class 4 NI at 6% instead of 8% on profits between £12,570 and £50,270. They can also deduct expenses (or the £1,000 trading allowance). Self-employed take-home is therefore higher than an employee’s on the same figure. Read the sole trader guide.
Canada
The self-employed pay both halves of CPP (11.9% plus 8% CPP2) but no EI. The employer half is deductible. The net effect is a little less take-home than an employee on the same income. Read the self-employed guide.
Australia
Sole traders pay the same individual rates and Medicare levy as employees, and get the small business income tax offset of up to $1,000, so take-home is slightly higher. But employees also receive 12% super on top of salary, which a sole trader has to fund themselves. Read the sole trader guide.
The hidden value of being employed
Tax is only part of the story. Employees typically receive benefits worth 20–40% of salary:
- Retirement: 401(k) match (US), at least 3% pension (UK), CPP employer half and often an RRSP match (Canada), 12% super (Australia).
- Paid leave: vacation, public holidays and sick days. A freelancer earns nothing on those days.
- Insurance: employer health insurance (worth thousands in the US), plus disability and life cover.
- Employer payroll taxes: 7.65% FICA in the US, 15% NI above £5,000 in the UK, employer CPP and EI in Canada.
- Equipment, training and job security.
How much more should freelancers charge?
A practical way to set a rate:
- Start with the salary you’d accept as an employee.
- Add 25–40% for benefits, leave and employer taxes.
- Divide by realistic billable hours: most freelancers bill 1,000–1,400 hours a year, not 2,080, once admin, sales and holidays are counted.
Example: to replace a $90,000 salary with a 30% uplift over 1,200 billable hours, you need $97.50 an hour. Use the “billable hours” fields in the freelance calculator to see your real hourly take-home.
How to decide
- Compare take-home after tax and after replacing benefits, not headline figures.
- Budget for lumpy income: keep 3–6 months of expenses in reserve.
- Set up a tax account from day one and move your tax percentage across with every payment.
- Revisit structure (S corp, limited company, incorporation) once profit is comfortably above your living costs.
Break-even: what to bill to beat your salary
Here’s the freelance income needed to match an employee’s take-home plus 25% to replace benefits and unpaid leave, and the hourly rate that implies at 1,200 billable hours a year:
| Country | Salary | Employee take-home | Freelance income needed | Hourly rate (1,200 hrs) |
|---|---|---|---|---|
| US (Texas) | $80,000 | $65,110 | $105,398 | $87.83 |
| UK (England) | £50,000 | £39,520 | £66,669 | £55.56 |
| Canada (Ontario) | $80,000 | $60,303 | $105,354 | $87.79 |
| Australia | $90,000 | $70,680 | $114,515 | $95.43 |
A worked case study
A software developer earning a $120,000 salary in California is offered a contract at $85 an hour. At 1,400 billable hours that’s $119,000. Looks identical, but after self-employment tax, the loss of a 401(k) match and paying for health insurance, the contract is worth noticeably less. To come out ahead they’d need roughly $110–$125 an hour. Run both sides in our salary and self-employed calculators to see your own numbers.
The hybrid option
Many people keep a salaried job and freelance on the side. The salary covers benefits and steady income. Side income is taxed at your marginal rate (plus self-employment tax in the US or Class 4 NI in the UK). Remember to set aside tax from day one, because nobody withholds it.
Side hustle rules in each country
| Country | When side income becomes taxable / reportable | Extra contributions on profit |
|---|---|---|
| United States | All income is taxable; self-employment tax applies once net earnings reach $400 | 15.3% self-employment tax on 92.35% of profit |
| United Kingdom | Over £1,000 of trading income (the trading allowance) | Class 4 NI at 6% / 2% once total profits exceed £12,570 |
| Canada | All business income is taxable | CPP at 11.9% on self-employment earnings (combined with any employment earnings up to the annual maximum) |
| Australia | All business income is taxable; an ABN is needed if you’re carrying on a business | Medicare levy only (no extra social security tax) |
Platforms increasingly report sellers’ income to tax authorities: 1099-K forms in the US, and digital platform reporting rules in the UK, Canada and Australia. Unreported side income is easier than ever to spot.
Frequently asked questions
Do freelancers pay more tax than employees?
In the US and Canada, usually yes, because of the employer share of social security contributions. In the UK and Australia, usually slightly less.
What salary equals $100k of freelance income?
In Texas roughly $97,804 before benefits. Benefits push the true equivalent lower still.
Can I be employed and freelance at the same time?
Yes, in all four countries. Your side income is taxed on top of your salary, often at your highest marginal rate.
