How to calculate and pay self-employment taxes
You’ll have to pay self-employment taxes annually, and these taxes are due at the same time that you pay your income taxes.
This guide will walk you through your self-employment tax calculation, showing you how to determine how much money you owe and how to walk through the process of paying taxes as a self-employed person.
1. Calculate your net self-employment income
First, you’ll need to calculate your net earnings from self-employment. Your net earnings can be determined by subtracting your business expenses from your gross income.
You’ll typically calculate your net self-employment earnings using a Schedule C as part of IRS Form 1040, your federal income tax return. If you’re a sole proprietor, small business owner, or independent contractor, you must fill out Schedule C as part of your tax return.
2. Determine tax bracket
The Tax Rate Schedule is first determined by your filing status (Single, Married filing jointly, Married filing separately, and Head of Household) and your income. Your federal income tax bracket will determine how much you should be paying as a general foundation.
For example, someone making $95,000 annually and filing jointly as a married couple has a 22% tax rate. They’ll owe $9,235 plus 12% of the amount over $80,250 (which comes out to 1,770), totaling $12,775 in taxes. But that’s without any deductions or credits, so you can reduce your taxable income.
3. Determine whether you are above the Social Security wage base
If your net earnings from self-employment fall below $147,000 (for 2022), the rest of your calculation is quite simple, and you can simply proceed to step 4 below.
But if you’ve had a particularly good year, your self-employment taxes are slightly more complex. Refer to our section below with instructions for high earners under step 4, and we’ll explain how to calculate the tax on this income.
4. Calculate your self-employment tax
For tax year 2021, self-employment tax is 15.3% up to $142,800 and 2.9% on any net income above that threshold.
If your net earnings fall below the Social Security wage base of $142,800, you can calculate your self-employment tax quite easily.
Start by calculating your taxable income. Since your employer already paid their portion of the FICA taxes (7.65%), you’ll simply multiply your net income by the remaining 92.35%.
For example, if you earned $60,000 in net income for the year, you’ll multiply this number by 0.9235. This math means that you’ll have to pay self-employment tax on $55,410.
Next, you’ll calculate your self-employment taxes. You’ll simply multiply your taxable income by the self-employment tax rate of 15.3%. Continuing our above example, you’ll multiply $55,410 by 0.153. This result means that your total self-employment tax comes out to $8,478.
Once you have this number figured out, you can skip ahead to step 5, which will walk you through the filing process.
High wage earners will calculate their self-employment tax differently
If your net earnings from self-employment exceed $147,000, you’ll have to do just a few more steps. For example, if your net earnings came out to $150,000, you’ll only pay tax on the first $147,000. But this also means that you’ll use a separate calculation for Social Security and Medicare taxes. Just follow these additional steps:
- Calculating Social Security tax: According to the IRS, your first $147,000 will always be considered taxable if you meet this wage base. If we use the above example, it means you’ll pay the 12.4% Social Security tax on $147,000, but your remaining income ($3,000) will not be touched by Social Security tax.
- Calculating Medicare tax: To determine your Medicare tax, start by calculating your taxable income. Simply multiply your net earnings by 92.35%. In our example, this comes out to $138,525. To calculate your total Medicare tax, multiply this number by the tax rate of 2.9% ($138,525 x 0.029). Your final Medicare tax will come to $4,017.
- Calculate your total self-employment tax: Once you make your calculations for your Social Security and Medicare taxes, you can simply add these numbers together to determine your grand total.
5. File your self-employment tax annually
If you’re subject to self-employment taxes, you’ll need to file Schedule SE along with Form 1040. Generally, your taxes will be due on April 15 of each year, though, in 2022, this deadline has been pushed to April 18 to accommodate the Easter holiday.
6. Make estimated tax payments during the year
If your net earnings from self-employment exceed $1,000, you’ll need to submit quarterly estimated tax payments throughout the year. IRS Form 1040-ES can be used to make this calculation, which basically takes the amount you’ll owe for the year, and splits it into four equal payments.
These estimated taxes are due on the following dates:
- April 15
- June 15
- September 15
- January 15 (of the following tax year)
If the 15th should fall on a weekend, the deadline gets moved to the first Monday after the original deadline.
Form 1040-ES includes vouchers that you can use when mailing in your tax payment, though you may find it easier to use the IRS Direct Pay website. Keep in mind that the IRS website isn’t as intuitive as you might prefer, so make sure to keep records of your payments.