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Next, to calculate your self-employment tax, you’ll need to fill out Schedule SE (SE stands for self-employment). You hung onto those, right? And then you’ll deduct expenses to come up with your net income. Schedule C is where you’ll add income listed on any 1099-NEC or 1099-K tax forms you received from doing work as a contractor. So to start, you’ll need to fill out Schedule C to figure out your net income from being self-employed. Fair warning: Self-employed folks have to wade through more tax forms than an average tax filer. If you’re your own boss and your boss isn’t great at math, calculating your self-employment tax can be tricky.
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5 How to Calculate the Self-Employment Tax 4 And this limit can be reached through a combination of what you earn from your regular job, which would already have Social Security taxes taken out, and your side job.īut if your self-employed income exceeds $200,000 as a single filer or $250,000 as married filing jointly, the IRS will charge you an additional 0.9% in Medicare taxes. For the 2021 tax year, the maximum amount of income subject to Social Security is $142,800. 3īut as your income increases, you do get some relief on the 12.4% Social Security portion of the self-employment tax. And in a strange piece of tax code, any amount over $108 earned while contracting for a church is taxed. Any amount over $400 is subject to the self-employment tax. Selling your handmade friendship bracelets on Etsy? For sure.
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2 Do you have to pay the self-employment tax on the money you earn driving for a rideshare company? Yep. But you also have to pay it if you work a regular job and earn more than $400 a year from a side hustle, gig, freelance work-whatever you call it. If you earn all your income from being self-employed, you have to pay the self-employment tax. There are some deductions that will lower your tax bill slightly. So what it really boils down to is that being self-employed will cost you about 7.65% in additional taxes. Got small business tax questions? RamseyTrusted tax pros are an extension of your business.Īnd the self-employment tax is in addition to any other federal, state or local taxes you’re required to pay based on your income. Ouch! It’s kind of like going out to get some tacos with a friend and when it’s time to split the check, they’re like, “Oh man, I can’t find my wallet.” Pretty frustrating, right?
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So if you’re self-employed, you’re stuck paying the full 15.3%. But the difference between being self-employed and being employed by a company is that employers are required to foot the bill for half (7.65%) of FICA. (You’ve probably seen FICA as a line item on a paystub at some point and wondered, Who the heck is FICA and why are they taking my money?) How Much Is the Self-Employment Tax?Įveryone who works has to pay FICA taxes on their wages. 1 These taxes are often called FICA, which stands for Federal Insurance Contributions Act. It’s made up of 12.4% for Social Security and 2.9% for Medicare. The self-employment tax rate is 15.3% of your net earnings. Makes you feel all warm and fuzzy inside, right? Wrong! And that’s especially true during tax time when Uncle Sam hits you with the self-employment tax. I set my own hours! But the truth is, working for yourself isn’t all fun and games. To outsiders, being self-employed might look like fun.