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 these taxes for W-2 workers, but self-employed individuals pay both portions.

2. How Does the Calculator Work?

The calculator uses the self-employment tax formula:

Where:

• \( Net\ Earnings \) — Your business income minus expenses (profit)
• \( 0.153 \) — The combined Social Security (12.4%) and Medicare (2.9%) tax rate

Explanation: The 15.3% rate represents both the employer and employee portions of Social Security and Medicare taxes that self-employed individuals must pay.

3. Importance of Self Employment Tax

Details: Paying self-employment tax is required by law and ensures you qualify for Social Security and Medicare benefits. It's typically paid quarterly as estimated tax payments.

4. Using the Calculator

Tips: Enter your net earnings (business income minus expenses) in dollars. The calculator will compute your estimated self-employment tax obligation.

5. Frequently Asked Questions (FAQ)

Q1: Is there a cap on self-employment tax?
A: Yes, the Social Security portion (12.4%) only applies to the first $160,200 (2023 limit) of net earnings. The Medicare portion (2.9%) applies to all net earnings.

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: When are self-employment taxes due?
A: Typically paid quarterly as estimated taxes on April 15, June 15, September 15, and January 15.

Q4: What if I also have W-2 income?
A: Your W-2 income counts toward the Social Security wage base first before your self-employment income.

Q5: Are there any exceptions to paying self-employment tax?
A: Certain religious groups and some nonresident aliens may be exempt. Also, net earnings below $400 are generally exempt.