1. What is Self-Employment Tax?

Self-employment tax is how self-employed individuals pay into Social Security and Medicare. It's similar to how employers and employees split FICA taxes for traditional employees, but self-employed individuals pay both portions.

2. How is Self-Employment Tax Calculated?

The calculator uses the standard self-employment tax formula:

Where:

• Net Income — Your business profit after expenses
• 0.153 — The self-employment tax rate (15.3%)

Note: The 15.3% rate consists of 12.4% for Social Security and 2.9% for Medicare. There may be additional Medicare tax for high earners.

3. Why is Self-Employment Tax Important?

Details: Self-employment tax is a crucial obligation for independent contractors, freelancers, and business owners. It funds your future Social Security and Medicare benefits and is required by law.

4. Using the Calculator

Tips: Enter your net self-employment income (after business expenses). The calculator will compute your estimated self-employment tax at the standard 15.3% rate.

5. Frequently Asked Questions (FAQ)

Q1: Is the self-employment tax rate always 15.3%?
A: Generally yes, but there's an additional 0.9% Medicare tax on earnings over $200,000 (single) or $250,000 (married filing jointly).

Q2: Can I deduct part of my self-employment tax?
A: Yes, you can deduct the employer-equivalent portion (7.65%) when calculating your adjusted gross income.

Q3: Do I pay self-employment tax on gross or net income?
A: On net earnings (after business expenses) from self-employment.

Q4: Are there limits to Social Security tax?
A: Yes, in 2023 the 12.4% Social Security portion applies only to the first $160,200 of net earnings.

Q5: How often do I pay self-employment tax?
A: Typically through quarterly estimated tax payments if you expect to owe $1,000 or more in taxes for the year.