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The Self Employment Tax Calculator
The goal of the self-employment tax calculator is to give those who are entering the freelance economy a rough estimate of the maximum amount they may owe in taxes. The calculator is also useful for those who have a grasp of what their net taxable income will be. The simple interface will allow you to avoid the pesky arithmetic involved in the common tiered tax model. This calculator is a pure estimate and only uses the self-employment tax deduction(half of the self employment tax) to determine your taxable income.
It's important to note that this website does not claim to give any legal advice. Questions should be referred to a tax professional or lawyer, and estimates should be verified. The calculator automatically exempts those making below the federal standard deduction from the federal tax calculation. States differ when it comes to deductions. Speak to a professional for more information.
Calculating Self-Employment Tax
In the US, whether you have a W-2 job or not, if you earn income as an independent contractor or through informal side gigs, the IRS considers you a proprietor of a business, and your business profit is generally subject to federal income tax and self-employment taxes that support Social Security and Medicare.
When you're starting out in the gig economy, it can come as a shock when you find out that you owe the IRS more than you thought you would. That's because you may have failed to take the self-employment tax into account. In addition to state and federal taxes, someone who qualifies as self-employed and earns $400 or more must pay 15.3% of their adjusted gross income in what's commonly known as a self-employement tax.
You're essentially responsible for paying the FICA tax like an employer would. The FICA tax consists of Social Security and Medicare. You pay 12.4% on the first 132,900 of earnings(2019) for Social Security and 2.9% on all of your earnings for the Medicare portion. You will pay an additional 0.9% Medicare tax on the amount that your annual income exceeds $200,000 for single filers, $250,000 for married filing jointly, and $125,000 married filing separate.
Those who file a W-2 don't have to worry about this tax; half of it automatically comes out of their paycheck. Luckily for you, the employer portion can be deducted from your net income.
You calculate your net income by subtracting deductions like business expenses from your total income on a Schedule C form. You can learn more about deductible business expenses by reading the Schedule C instructions and reading the IRS' Publication 535 Business Expenses. You then take the Schedule C net income or profit you calculated and use that to determine your self employment tax.
Note that you calculate the self employment tax based on 92.5% of your Schedule C profit. Mathmatically, you're pre-determining the deduction of half the self-employment tax by adjusting your net income. Self employment calculations go on Scedule SE, so read the instructions for more information.