Self-Employment Tax: How To Calculate And File In 2024

If you’re working for yourself, you’ll need to learn when and how to pay self-employment tax. Although the process can entail several steps, it can be straightforward. To help ensure you’re getting everything right, learn whether you need to pay self-employment tax, how to calculate it and when to file.

What Is Self-Employment Tax?

When you work full-time as an employee for a company, the payroll department typically handles the withholding of your income tax. Your employer deducts the Medicare and Social Security tax (known collectively as FICA – Federal Insurance Contributions Act) that you owe as a payroll deduction. Self-employment tax consists of Social Security and Medicare taxes, and is paid by both as an employee and as an employer.

Who Pays Self-Employment Tax?

Those who qualify as self-employed are responsible for paying self-employment tax. According to the IRS, you are typically considered self-employed if you run a business as a sole proprietor or you work as an independent contractor. These types of contract work or businesses include both full-time and part-time jobs. In other words, you earn wages that don’t necessarily rely on a full-time employer.

• Different types of self-employment include:
• Gig worker (such as those who work for ride-share companies)
• Contract workers or freelancers
• Sole proprietors
• Small-business owner with certain business entities

In most cases, you must pay self-employment tax if you had $400 or more in net earnings per calendar year, according to the IRS. Taxes apply to all workers regardless of age or whether they receive Social Security or Medicare benefits. Even if you don’t earn that amount in a year, you may still be required to file a tax return, though you may not be responsible for paying self-employment taxes.

What Is The Self-Employed Tax Rate For 2024?

The self-employment tax rate for 2024 is 15.3%, which is also what the tax rate is for the 2023 tax year. This percentage includes Social Security and Medicare taxes.

The tax rate for the 2023 tax year breaks down into a 12.4% Social Security tax, and a 2.9% Medicare tax. These amounts are different from the Medicare tax and Social Security tax that’s directly taken out of an employee’s paycheck by their employer. Instead, employees are responsible for 7.65% of Medicare and Social Security taxes, and employers pay the remaining 7.65%.

Keep in mind that the 15.3% tax rate is only for the first $160,200 of your taxable self-employment income for the 2023 tax year. Any amount over $160,200 will only be subject to Medicare taxes at 2.9%.

How To Calculate Your Self-Employment Tax

Here’s how to calculate your self-employment tax in a few steps:

1. Determine net earnings by taking your gross income and subtracting any business expenses and deductions.
2. Multiply your net earnings by 92.35%, assuming the number is greater than 0.
3. Use the number you calculated above and multiply it by the 2023 tax year self-employment tax rate (15.3%)
4. This number is what you owe in self-employment taxes.

For example, say your net earnings for the year are $125,000 after taking into account your business expenses and deductions. After multiplying your net earnings by 92.35%, you get $115,437.50. Taking that amount, you can then calculate your self-employment tax, which is $17,661,94.

How To File And Pay Your Self-Employment Tax

You need to first have a Social Security number (SSN) or employer identification number (EIN) to file self-employment tax. Other documents you will need include any 1099-NEC or 1099-MISC forms, your record of self-employment income, evidence of qualifying deductions, and other applicable paperwork.

• Forms you will need to file include:
• IRS Schedule C form to report your business earnings
• IRS Schedule SE form to calculate self-employment taxes
• IRS 1040 form to file your taxes

If you expect to owe $1,000 or more in taxes for the year, you will also need to make estimated tax payments each quarter. To calculate this amount, estimate how much you’ll earn in one calendar year (and your tax liability) and divide it by four. Consider working with a tax professional and referring to the IRS website to ensure you are doing everything correctly.

Tax Deductions For Self-Employed Tax Filers

One of the benefits of being self-employed is the ability to make business deductions that significantly reduce your tax liability.

Some common self-employment tax deductions you may qualify for include:

• Home office deduction: As long as the area in your home is used solely for business purposes, you may be able to deduct expenses such as mortgage interest, insurance, utilities, repairs and depreciation — your accountant can advise you here.
• Health insurance deduction: If you’re not on an employer-sponsored plan, such as the one from your spouse, you generally can deduct premiums on your taxes.
• Self-employment tax deduction: You may be able to deduct the employer-equivalent portion of your self-employment tax based on your adjusted gross income.
• Retirement deduction: Contributions made toward qualified plans (up to a certain limit) can reduce your taxable income.

Self-Employment Tax FAQs

Consider the following frequently asked questions as you’re continuing to learn about self-employment taxes.

How do I pay the self-employment tax?

You’ll pay the self-employment tax on your personal income return each year and in quarterly estimated payments if you earn over $1,000 in a calendar year.

Can I avoid having to pay the self-employment tax?

You will need to pay the self-employment tax if you earn over $400 in a calendar year. Though you will still need to file a tax return if you don’t, you generally won’t be responsible for self-employment taxes.

Am I able to write off self-employment tax?

You may be able to deduct 50% of the amount you pay in self-employment taxes on your income tax return.

Are Social Security and Medicare taxes included in the self-employment tax?

Yes, you need to pay both Social Security and Medicare taxes if you’re self-employed. That’s because you’re considered your own employer; if you had an employer, you as the employee would cover part of these taxes and your employer would cover the rest. You can get the necessary self-employment tax forms you’ll need to file at IRS.gov.

The Bottom Line

Filling out your income tax return, especially having to pay self-employment tax, can seem challenging. That’s why it’s smart to start early, gather all applicable paperwork for the tax year and educate yourself on the many ways you might be able to save through deductions and other grants and programs.

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