How to Calculate Self-Employment Tax
Self-employment tax, also called SE tax, is the tax liability that self-employed taxpayers incur as a result of not having their taxes withheld from their earnings. When a traditional employee receives his payroll check, his taxes for Social Security and Medicare are automatically withheld. Self-employed individuals, on the other hand, have the unique responsibility of calculating, filing, and paying these taxes themselves. If you work for yourself as an independent contractor, freelancer, or you run your own business from home, you are likely required to pay self-employment taxes. You can use this guide to help you calculate your self-employment tax liability for the previous tax year.
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Instructions
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Calculate your net income, which is equal to your total gross income minus any deductions and credits. To calculate your net income, you will need a copy of your Form 1099 for the prior tax year and/or your gross sales receipts. You will also need your gross expense receipts for all goods, supplies, and other self-employment or business-related expenses. Subtract your total expenses from your gross income for your total adjusted net income. Apply any eligible deductions and credits, and the final amount is your net income.
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2
Multiply your total net income by 92.35% (or 0.9235, if using a calculator). This will give you your total net earnings from self-employment, and the amount of your earnings subject to self-employment taxes.
Note: If your total net earnings are $399 or less, you do not have to file or pay self-employment taxes.
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Calculate your total self-employment tax liability. There are two ways to do this, and the method you should choose depends on the amount of your total net earnings:
If your total net earnings equal $106,800 or less, multiply your total net earnings for 15.3% (or .153). This is your total self-employment tax liability.
If your total net earnings exceed $106,800, multiple your total net earnings by 2.9% (or .029). Add $13,243.20 to the amount you receive. This is your total self-employment tax liability prior to any deductions.
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Claim your self-employment tax deduction. The IRS allows self-employed individuals to claim a deduction equal to 50% (one-half) of their total self-employment tax liability. Multiple the amount you received in the previous step by 50% (0.5) to calculate your self-employment tax deduction.
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Claim any other deductions or credits, including the Earned Income Credit, for which you are eligible to reduce your self-employment tax liability. You will need to review a list of current deductions and credits for the year to determine what you are eligible to claim.
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