How to Calculate Self-Employment Tax Withholdings

The self-employment tax is a type of tax that is levied on individuals who work for themselves. The tax is a Social Security and Medicare tax. Self-employed individuals do not receive traditional paychecks with withholdings. Therefore, it is necessary for the self-employed individual to manually calculate the amount of self-employment tax he must pay to the Internal Revenue Service (IRS). Self-employment tax is normally sent to the IRS quarterly, as part of the quarterly tax payment.

Instructions

1. Determine the total amount of self-employed income you made during the tax year. As an example, assume that you made $150,000.

2. Calculate the Medicare portion of the self employment tax. Medicare is assessed at a rate of 2.9% with no maximum. Continuing the same example, $150,000 x .029 = $4,350.

3. Calculate the Social Security portion of the self-employment tax. Social Security is assessed at a rate of 12.4% of the first $106,800 of income. Continuing the same example, $106,800 x .124 = $13,243.20.

4. Add the Medicare and the Social Security potions of the self-employment tax together. Continuing the same example, $4,350 + $13,243.20 = $17,593.20. This figure represents the annual amount of your self-employment withholdings.

References

• IRS.gov: Self-Employment Tax