How to Compute Self Employment Taxes
Most people pay payroll taxes through their employer. However, if you are self-employed, or an independent contractor, you must pay self-employment taxes because you do not have an employer to withhold money from your paycheck. You will be required to pay self-employment taxes if your self-employment income exceeds $400 or your church income exceeds $108.28. In order to compute the amount of self-employment taxes you owe, you need to know the amount of income your self-employment generated and the amount of money you spent on expenses.
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Instructions
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1
Determine your net gain from self-employment by subtracting any business expenses from your net operating income. For example, if you earn $156,000 in income, but have $3,000 in expenses, your self-employment income would be $153,000.
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2
Multiply your self-employment income by 0.9235 to calculate your income subject to self-employment taxes. For example, if your income equals $153,000, you would get $141,295.50.
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3
Compute the Social Security portion of your self-employment tax. For 2010, the social security self-employment tax equals 12.4 percent on the first $106,800 of your income. For example, if your income subject to self-employment taxes was $141,295.50, you would only pay the Social Security tax on the first $106,800 for a total of $13,243.20.
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4
Compute the medicare portion of your self employment tax. For 2010, the medicare self-employment tax rate equals 2.9 percent. For example, if your income subject to self-employment taxes was $141,295.50, you would owe $4,097.57 in medicare taxes.
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5
Add the total you owe from medicare taxes from Step 4 to the total you owe from Social Security taxes in Step 3 to calculate your total self-employment taxes. For example, if you owed $13,243.20 in Social Security taxes and $4,097.57 in medicare taxes, you would owe a total of $17,340.77.
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