Use our self-employment tax calculator
to see how much you may owe
Did you know that in 2022, the IRS raked in over $78 million in self-employment taxes? In fact, for many self-employed individuals and entrepreneurs, the self-employment tax can actually be a bigger financial burden than their regular income taxes. In this guide, we'll break down the calculations, explain who needs to pay, and show you how to avoid penalties related to self-employment taxes.
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Do I need to pay the self-employment tax?
Yes, if you made $400 or more in self-employment net income, you must pay the self-employment tax (also known as the SECA tax). This tax is the self-employed person's equivalent of the FICA (Federal Insurance Contributions Act) tax paid by employers and employees for Social Security and Medicare. The self-employment tax is due on 92.35% of your net earnings from self-employment.
What is the self-employment tax?
The self-employment tax is divided into two parts Social Security & Medicare. The amount that the IRS collects when you are a self-employed individual is technically the same as anyone else, except if you were a W-2 employee your employer typically covers half of the tax. As an independent contractor, sole proprietor, or self-employed individual, you are responsible for both the employee and employer portions of the tax.
In 2024, the Social Security tax applies to the first $168,600 of earnings if your earnings exceed this amount, whether from self-employment, employment, or both, the 12.4% Social Security tax stops for the year.
The Medicare portion of the self-employment tax continues indefinitely, unlike the Social Security portion which stops after reaching a certain income level. The Medicare tax has a fixed rate of 2.9% that applies to all of your self-employment income, regardless of the amount. However, if your income exceeds certain thresholds - $200,000 for single filers or $250,000 for married couples filing jointly - there's an additional Medicare tax rate increase of 0.9%. So any income earned above those thresholds, the total Medicare tax rate is 3.8%.
How do I report and pay self-employment tax?
If you're a sole proprietor or independent contractor without a formal business structure like incorporation or partnership, reporting your business income is usually done using Schedule C. This form is then filed along with your personal tax return, Form 1040. In simpler terms, it means you handle it when you file your taxes.
Calculating self-employment tax
To calculate your self-employment tax, you can simply use the calculator at the top of the page.
If you want to understand the calculations behind the calculator you begin by multiplying your net self-employment income by 92.35%. If the resulting amount is less than $168,600, multiply it by 15.3%. If it exceeds $168,600 but falls below $200,000 (or $250,000 for married filing jointly), apply a 2.9% rate to the portion in that range. Any income beyond these thresholds is subject to a 3.8% Medicare rate. Summing these calculations will give you your total self-employment tax.
When figuring out the self-employment tax, the Social Security and Medicare portions are added to any additional income, like wages from a W-2 job or a spouse's earnings, to determine the overall taxable sum. The calculation also considers any Social Security and Medicare taxes already withheld from other sources of income.
Using Schedule SE as a reference can aid in calculating your projected self-employment tax. This form is essential for determining your taxable liability when completing your tax return.
Good news - Tax deductions
You can claim 50% of what you pay in self-employment tax as an income tax deduction. For example, if you had $100,000 of self-employment income and a SE tax of $15,300 you would be able to reduce your taxable income by $7,650. If you're in the 24% tax bracket, this would save you $1,836 in income taxes. This deduction is an adjustment to income claimed on Form 1040 and is available whether or not you itemize deductions.
A quick video example with
Jessica the self-employed photographer:
If you find self-employment tax is a significant burden and seek ways to lessen this tax obligation, consider looking into an S-Corp election. Dive into our guide on S-corps to understand how this option can help decrease your tax liability.
Should I file estimated taxes?
Yes, if you have a self-employment income or other income from sources without Federal withholdings, you should make quarterly estimated tax payments using Form 1040-ES. When you are self-employed, the entire burden of paying employment taxes and prepaying estimated income tax liability falls on you. The government expects you to make payments of your estimated taxes throughout the year in quarterly installments. If you don't, you may be subject to underpayment penalties.
For more information on estimated taxes and how much to pay to avoid penalties, you can read our guide to estimated taxes. We discuss how to calculate your estimated tax amount and how to safeguard yourself by paying the "Safe Harbor" estimated tax.
Self-employment tax - the complete picture
As a self-employed individual, staying on top of your tax responsibilities is essential. Understanding the self-employment tax, its components, and how to report and pay it accurately can save you from potential penalties and ensure you're compliant with tax regulations. By making estimated quarterly payments, claiming deductions, and seeking the help of UnitedTax.AI when needed, you can navigate the complexities of self-employment taxes and focus on growing your business or career.
