How to calculate self employment taxes

self-employment taxes

Self-employment taxes are the employment taxes for someone who is self-employed.  They are separate from your state and federal taxes.

If you want a quick answer, check line 12 on schedule SE.  Continue reading if you want to understand how self-employment taxes work.

Table of Contents

    What are Self-Employment Taxes?

    Self-employment taxes are your social security and medicare tax on your self-employed earned income.  FICA taxes, (Federal Insurance Contributions Act) are also social security and medicare taxes but from employment earned income, think W-2 wages.

    They are the same thing. However, you pay both the employee and employer side of these taxes when you are self-employed.

    The tax has two parts, Social Security and Medicare, which total 15.3% and are further broken down into the employer and the employee side.

    Social Security makes up 12.4% of self-employment tax which is 6.2% for the employee and an additional 6.2% for the employer. While medicare is 2.9% of self-employment taxes, with 1.45% for the employee and 1.45% for the employer.

    When adding up each side of self-employment taxes you will get 7.65% for both the employer and employee. 6.2% + 1.45% = 7.65%

    Finally, if you add both the employer and employee sides, that is a total of 15.3%.  7.65% + 7.65% = 15.3%

     

    How to calculate self-employment taxes fast

    You can calculate your self-employment tax quickly if you're under the social security maximum of $147,000 for 2022.  Otherwise, skip to the next section on "How to calculate self-employment taxes with tax forms," for a complete self-employment tax walkthrough.

    Step 1. Multiply your net income from self-employment by .9235

    Self Employment Calculation Step 1

    Step 2. Multiply Step 1 by 15.3%

    Self Employment Calculation Step 2

    Step 3. Multiply step 2 by 50%

    Self Employment Calculation Step 3

    Social Security has an income limit but Medicare is taxed on all earned income.  It's 2.9% plus an additional medicare tax of 0.9% on income over certain limits depending on your filing status.

    Medicare Tax and Additional Medicare tax

    The Medicare tax side doesn't have a limit, so that gets applied no matter how much money you earn.

    If you earn more than certain income limits depending on your filing status, you will owe an additional 0.9% in additional medicare tax.

    • $250,000 for married filing jointly;
    • $125,000 for married filing separately; and
    • $200,000 for all other taxpayers.

    Social Security Tax Limits

    Social security is only calculated up to certain income limits.  The income limits do not depend on your filing status.

    YearSocial Security Income Limits
    2015$118,500
    2016$118,500
    2017$127,200
    2018$128,400
    2019$132,900
    2020$137,700
    2021$142,800
    2022$147,000

    How to calculate self-employment taxes with tax forms

    Calculating your self-employment taxes is based on your net profit.  If you're a sole proprietor or single-member LLC not filing as an S-Corporation, you can find your net profit on Schedule C.  Members of a partnership can check line 14 on Schedule K-1 of form 1065.

    First, find your net profit using one of the two methods below.  Then continue to Schedule SE, to calculate your total self-employment tax.

    Schedule C line 31

    You can find your net profit on Schedule C, line 31.  Your net profit minus 1/2 of your self-employment tax will be the number used to determine your total self-employment taxes.

    To avoid double taxing your taxes, you subtract 1/2 of self-employment taxes from the net profit.  It's also called the deductible portion of self-employment.


    Partnership K-1 Line 14

    If you are a member of a partnership, you can find your net profit from self-employment on Schedule K-1 of Form 1065, line 14.

    Schedule SE for Self-Employment Taxes

    Schedule SE has been updated since the video and you can find all the same numbers to calculate your self-employment taxes.  You can find your self-employment taxes on line 12 and the deduction for 1/2 of self-employment on line 13.

    Here is a walkthrough of the form that will work for most filers.

    Line 2: Insert your net profit from Schedule C line 31 or Schedule K-1 line 14

    Line 3: Insert the same amount from line 2. (We're skipping farmers, sorry farmers)

    Line 4a: Multiply line 3 by 92.35%, which is your net income minus 1/2 of your self-employment.

    If you're not using an option method and don't have Church income you can skip down to Line 6.

    Line 4b: If you elect one or both of the optional methods, enter the total of lines 15 and 17.

    Line 4c: Combine lines 4a and 4b. If less than $400, stop; you don’t owe self-employment tax. Exception: If less than $400 and you had church employee income, enter -0- and continue

    Line 5a: Enter your church employee income from Form W-2.

    Line 5b: Multiply line 5a by 92.35% (0.9235). If less than $100, enter -0-.

    Line 6: Add lines 4c and 5b. If you skipped the above, enter the number from line 4a.

    Line 7 This is the maximum social security income limit.

    Lines 8a-c  Are your employment wages, not your self-employment income.

    Line 8d: Add up all your employment wages. (Again, not your self-employment income)

    Lines 9-10: These lines calculate your social security tax.

    Line 11: These lines calculate your medicare tax.

    Line 12: This is the total amount of your self-employment tax.

    Line 13 The deduction for one-half of self-employment tax. Multiply line 12 by .50 or 50%.

    How can I reduce my Self-Employment Taxes?

    I thought you would never ask!  It may be possible to reduce your self-employment taxes depending on your business structure.  It doesn't always make sense to convert from a sole proprietorship, LLC or partnership to an S-corporation but in some instances, you can control and reduce your self-employment taxes within reason.

    While this is the end of this post on self-employment taxes, read up on distributions with an S-corporation.