How to calculate your self-employment tax

Self-employment tax is the name of the Internal Revenue Service for combined Social Security and Medicare taxes paid by people who work for themselves. Self-employment tax rates are different from employee-based taxes. Self-employed taxpayers who are responsible for Social Security taxes and Medicare are usually paid by the employer as well as by the paid staff.

Self-employment tax rate

The social security rate for self-employed people is 12.4% of net income. The IRS calculates this figure by adding a 6.2 percent employment rate to 6.2 percent that employees pay. The self-employed rate is 2.9 percent, making self-employment taxes equal to 15.3 percent. Graph the net income by subtracting the business cost from revenue. Suppose you have $ 100,000 in revenue from self-employment and $ 45,000 in business expenses. Multiply $ 55,000 in net income of 15.3 percent for proprietary taxes of $ 8,415. Congress can change these rates. For example, the interim rate drops 2 percent in 2011 and 2012. Check the IRS website for current figures.

Adjustment related to income

The social security portion of self-employment tax is calculated up to an annual income limit, which when published is $ 117,000. Net income beyond this limit is not subject to Social Security taxes. However, the amount that exceeds the annual limit is subject to Medicare self-assessment taxes. High-paying people pay an additional Medicare tax of 0.9% on net income over the annual threshold. The amount of this threshold varies depending on the status of the taxpayer. At the time of publication, it was $ 250,000 for couples filing a joint return, $ 125,000 for married couples filing separately and $ 200,000 for all other applicants.

How to calculate your self-employment tax

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