How to Calculate Self-Employment Tax

Self-employment tax is the Internal Revenue Service’s name for the combined Social Security and Medicare taxes paid by people who work for themselves. Self-employment tax rates are different than the rates paid by employees. Self-employed taxpayers are responsible for the Social Security and Medicare taxes normally paid by employers as well as the portion employees pay.

How to Calculate Self-Employment Tax Self-Employment Tax
How to Calculate Self-Employment Tax
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Self-Employment Tax Rates

The Social Security tax rate for self-employed people is 12.4 percent of net earnings. The IRS computes this figure by adding the employer equivalent rate of 6.2 percent to the 6.2 percent that employees pay. The self-employment Medicare rate is 2.9 percent, making self-employment tax equal to 15.3 percent. Figure net earnings by subtracting business expenses from revenues. Suppose you have $100,000 in revenue from self-employment and $45,000 in business expenses. Multiply $55,000 in net earnings by 15.3 percent for self-employment tax of $8,415. Congress can change these rates. For example, the rate was temporarily lowered by 2 percent for 2011 and 2012. Check the IRS website for current figures.

Income-Related Adjustments

The Social Security part of self-employment tax is levied only up to an annual income limit, which as of publication was $117,000. Net earnings in excess of this limit are not subject to Social Security tax. The amount over the annual cap is subject to Medicare self-employment tax, however. High-income earners must pay an additional Medicare tax of 0.9 percent on net earnings in excess of an annual threshold. This threshold amount varies depending on the taxpayer’s filing status. As of publication, it was $250,000 for married couples filing jointly, $125,000 for married people filing separately and $200,000 for all other filers.