Being your own boss comes with many perks, but it also brings a simplified but significant tax burden known as the Self-Employment (SE) Tax. This guide explains what it is and how to calculate it.
What is Self-Employment Tax?
When you are an employee, your employer pays half of your Social Security and Medicare taxes, and you pay the other half. When you are self-employed, you are both the employer and the employee, so you must pay both halves.
The SE tax rate is 15.3%, which consists of two parts:
- Social Security (12.4%): Applied to your net earnings up to a certain limit (the Social Security wage base).
- Medicare (2.9%): Applied to all of your net earnings (with an additional 0.9% surtax for very high earners).
How to Calculate Your SE Tax
Our calculator follows the official IRS method for estimating this tax:
- Calculate Net Earnings: This is your gross business income minus your business expenses.
- Apply 92.35% Factor: The IRS allows you to multiply your net earnings by 0.9235 before calculating the tax. This effectively gives you a deduction for the "employer" half of the tax you're about to pay.
- Multiply by 15.3%: Apply the SE tax rate to your adjusted net earnings.
The Formula:
SE Tax = (Net Business Profit × 0.9235) × 0.153
Step-by-Step Example
If you earned a net profit of $50,000 as a freelancer:
- Adjust Earnings: $50,000 × 0.9235 = $46,175
- Calculate SE Tax: $46,175 × 0.153 = $7,065
- Total Tax Due: $7,065
Note: You would also owe regular federal and state income tax on your earnings in addition to this SE tax.
Important Considerations
Deductibility: You can deduct 50% of your SE tax as an "adjustment to income" on your regular income tax return. This helps lower your overall income tax bill. Quarterly Payments: Because no employer is withholding these taxes for you, you are generally required to make estimated tax payments to the IRS every quarter. * 1099 Income: If you receive 1099-NEC or 1099-K forms, you are likely subject to self-employment tax.
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Disclaimer: Self-employment tax rules are technical and subject to income limits. This calculator provides an estimate. Consult with a tax professional or IRS Publication 334 for definitive guidance.