How Taxorly Calculates Your Tax

1. Federal tax, step by step

Net profit

The engine starts from net profit: what the business took in, less its business expenses. Self-employment tax and income tax are both charged on net profit, never on gross receipts.

Self-employment tax

Self-employment tax is charged on 92.35% of net profit, not all of it (Schedule SE, line 4a). If that figure is under $400, no self-employment tax is due. It is made up of:

• Social Security at 12.4%, only on earnings up to the 2026 wage base of $184,500. Wages from a job count toward that base first.
• Medicare at 2.9% on all of it, with no cap.
• Additional Medicare Tax of 0.9% on earnings above $200,000 ($250,000 for a joint return).

Half of it comes off your income

Half of the Social Security and Medicare parts is deducted from income before income tax is worked out. The Additional Medicare Tax is not part of that deduction. What remains is adjusted gross income (AGI).

The standard deduction

The QBI deduction, and its cap

The qualified business income (QBI) deduction is 20% of business income (net profit less the deductible half of self-employment tax, and less any retirement or health insurance deductions a calculator asks for), but never more than 20% of taxable income before the deduction. Above $201,750 of taxable income ($403,500 joint) the engine phases it out, reaching zero at $276,750 ($553,500 joint). It lowers income tax only. It does not reduce self-employment tax.

Federal income tax, bracket by bracket

Brackets are marginal: a dollar that crosses into a higher bracket is taxed at the higher rate, and the dollars below it are not. The 2026 bands for a single filer:

Married filing jointly and head of household have their own bands, from the same IRS document, and are used when you choose that filing status.

2. A worked example

A single filer with $75,000 of net profit, no other income, and a state with no income tax. These are the engine's own figures, rounded to whole dollars.

That is 20.7% of net profit. Effective rates on Taxorly are always quoted against net profit, not gross receipts.

3. State tax

The engine carries a bracket table for all 51 jurisdictions (the 50 states and the District of Columbia). 9 have no income tax on wages or business income, and return zero. For the other 42, it works out the state's taxable income and runs it through that state's own brackets.

• Starting point. 39 start from federal AGI and take off the state's own standard deduction. 3 (Colorado, North Dakota, South Carolina) start from federal taxable income, as their own returns say, so the federal deduction is already off and no state deduction is added.
• QBI. No state in the table subtracts the federal QBI deduction itself. The states that start from federal taxable income inherit it, because it is already off that figure. Colorado then adds the whole QBI deduction back above $500,000 of AGI ($1,000,000 joint), and adds back the federal deduction above $1,000 ($2,000 joint) once AGI is over $300,000.
• Credits. 6 jurisdictions in the table give a flat personal exemption credit, which comes off the tax, not the income.

Most of this table is compiled, not yet checked against each state's own schedule. Section 6 has the count.

4. City tax: New York City and Portland

City tax is added only on a city's own page, and only for people who live there. A state page never charges a city tax.

New York City

• Personal income tax: 3.078% to 3.876%, in brackets, on New York State taxable income, the same base the state tax uses. The schedule is the 2025 one; the 2026 schedule has not been published.
• Unincorporated Business Tax (UBT): 4% on the business, owed when gross income is over $95,000. It follows where the work is performed, not where you live or where your clients are. The calculation allows 20% of net income for your own services (up to $10,000) and a $5,000 exemption, then applies the business tax credit, which is the whole tax up to $3,400 and nothing from $5,400.
• Resident credit (Form IT-219): a city resident credits part of the UBT against city personal income tax. The share falls as income rises, and the credit cannot be more than the city tax, so the two are not charged twice.

UBT is a tax on net income, so it is not a business expense on Schedule C. It never reduces self-employment tax or AGI.

Portland: six taxes

Three on the business:

• City of Portland Business License Tax: 2.6%, owed from $75,000 of gross receipts.
• Multnomah County Business Income Tax: 2%, owed from $100,000 of gross receipts.
• TriMet transit self-employment tax: 0.8237% of net earnings above $400.

The City and County taxes allow an owner's compensation deduction of 75%, with a $100 minimum. These three follow where your clients receive the work, the opposite of New York City. The calculator assumes every client is in Portland and says so.

Three personal taxes, on Oregon taxable income:

• Metro Supportive Housing Services tax: 1% above $128,000 ($205,000 joint).
• Preschool for All: 1.5% above $125,000 ($200,000 joint), and a further 1.5% above $250,000 ($400,000 joint).
• Arts Tax: $50 ($100 married filing jointly) above $20,000 of Oregon taxable income ($40,000 joint).

None of the six is a Schedule C deduction, so none reduces self-employment tax or AGI. Other cities are still charged as a single rate; see section 7.

5. Totals and quarterly payments

Total tax is self-employment tax plus federal, state and city tax. The effective rate is that total divided by net profit.

Federal and state payments are shown separately, because they go to different places on different schedules. The federal payment (self-employment tax plus federal income tax) is split into four equal payments, due April 15, 2026, June 15, 2026, September 15, 2026 and January 15, 2027. California's is split 30% / 40% / 0% / 30%, with nothing due in September.

Mileage

2026 has two business mileage rates. The IRS raised the rate mid-year:

• January 1, 2026 to June 30, 2026: 72.5¢ a mile
• July 1, 2026 to December 31, 2026: 76¢ a mile

6. How much of the state data is verified

The state tables were compiled from Tax Foundation's 2026 table of state income tax rates and brackets, which gathers each state's published figures. That is a secondary source. Checking each figure against the state's own forms is the work still in progress:

• Every state's top marginal rate is checked by an automated test against Tax Foundation's 2026 figures. That catches typing and copying mistakes. It does not check the table against the states themselves.
• 1 of the 33 state standard deductions in the table has a confirmed tax year. The others are marked unconfirmed in the code.
• 39 states are assumed to start from federal AGI, the common case, but that has not been confirmed state by state.

Every state page says this in a note beside the figures. Treat a state figure as an estimate and check it with your state's revenue department before relying on it.

7. What we don't model

Each of these is a real gap between an estimate here and the return you will file.

The QBI deduction's wage and property limit

Above $201,750 of taxable income ($403,500 joint), the engine phases the deduction out for every business, as the law does for a specified service business. For other businesses the real limit depends on W-2 wages paid and business property, which the calculators do not ask for. The engine never gives a larger deduction than the law would.

Estimate may be too high

Itemized deductions, including state and local taxes (SALT)

The calculators take the standard deduction. Itemizing state income tax, property tax, mortgage interest or charitable gifts on Schedule A is not computed, so a filer whose itemized deductions are larger would owe less.

Estimate may be too high

Tax in a state where you do not live

Nonresident tax, such as New York's on work done there by a New Jersey or Connecticut resident (Form IT-203), and the credit your home state gives for it. The New York, New Jersey and Connecticut pages say this instead of showing a figure.

Estimate may be too low

Oregon's subtraction for federal income tax

Oregon lets residents subtract part of their federal income tax, capped and phased out with income. The engine does not, so Oregon tax, and the Portland taxes charged on Oregon taxable income, come out higher than they should.

Estimate may be too high

Illinois and Michigan personal exemptions

Both states give a per-person exemption that the engine does not apply, so every Illinois and Michigan figure is somewhat high.

Estimate may be too high

Head of household on state returns

State tax for a head of household uses the state's single brackets and single deduction. Many states give heads of household more.

Estimate may be too high

City taxes other than New York City and Portland

Philadelphia, Kansas City, Indianapolis, Columbus, Louisville, Baltimore, Pittsburgh, Cincinnati, Detroit and Cleveland are charged as one rate on federal taxable income, not on each city's own base. Cities that tax net profit are understated this way; others may be overstated.

Could go either way

Tax credits

No federal credit is applied: not the Child Tax Credit, the Earned Income Credit, education credits or energy credits. State exemption credits are applied where the state table lists one.

Estimate may be too high

Alternative Minimum Tax

AMT is not calculated, federal or state.

Estimate may be too low

New York City details

The household credit and school tax credit, New York City's changes to federal income for the Unincorporated Business Tax, and a part-year exemption. The Unincorporated Business Tax is worked out for city residents only.

Could go either way

Portland assumptions

The calculator assumes every client is in Portland and that you live in the Multnomah County part of the city. It uses the 2025 caps on the owner's compensation deduction, and subtracts only half of self-employment tax where Form SP also allows retirement contributions and self-employed health insurance.

Estimate may be too high

State estimated-payment schedules

California's 30/40/0/30 schedule is modelled. For other states, check the state's own due dates and shares before paying.

Could go either way

Deadline postponements

The IRS postpones deadlines for taxpayers in federally declared disaster areas. Those are announced, not derived, so the dates shown here do not reflect them.

Could go either way

Your household

Dependents, a spouse's income, married filing separately, other income apart from what a calculator asks for, prior-year carryforwards, and tax already withheld or paid.

Could go either way

8. Sources

Every official document the calculation code cites, what it supplies, and the tax year of the version used.

Compiled reference for state brackets and deductions not listed above: Tax Foundation, State Individual Income Tax Rates and Brackets, 2026.