How to calculate 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.
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
Step 2. Multiply Step 1 by 15.3%
Step 3. Multiply step 2 by 50%
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.
|Year||Social Security Income Limits|
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.