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How Much Will I owe In Self-Employment Taxes?

If there is a question that I have heard before this is it. How much will my self-employment taxes be? Why do I pay them? How do I calculate them? When do I pay them? How do I pay them?

Self-employment tax is both the employer and the employee parts of payroll taxes which go towards Social Security and Medicare. The tax rate is 15.3%. Social Security has a wage limit of how much can be taxed however the 2.9% that goes towards Medicare doesn't have a wage cap. If you have a high income than you may be paying an additional 0.9%.

Lets break it down even more. You would normally pay 6.2% towards Social Security from your paycheck if you were an employee. Your employer would normally pay 6.2% also towards Social Security. This is their portion of payroll taxes. The same applies to Medicare, you pay 1.45% and your employer pays their portion of 1.45%. So when your self-employed you have to cover both these portions, hence 15.3%.

Self-employment taxes exist so that the Federal government can still collect taxes on self-employed individuals just like employed individuals who work for an employer. Almost everyone pays taxes and that's the bottom line.

So how much do you owe? If you had net earnings of $400 or more then you pay SE tax. Just remember that self-employment taxes (SE tax) are based on your net earnings . So your income minus your expenses minus the would be employer share of these taxes. The would be employer portion is 7.65% because half of 15.3 well is 7.65. This means you pay self employment taxes on 92.35% of your net earnings. So if you make $30,000 in net earnings multiplied by 92.35%, then you would pay taxes on $27,705. However, you get a deduction of one-half of self-employment tax so multiply your self employment tax amount by 50%. This what you call an above the line deduction.

Let's look at the calculations.
$30,000*92.35%=$27,705
$27,705*15.3%=$4,239
$4,239*50%=$2,119

So your SE tax liability for the year would be $2,119. If you estimate that you will owe more than $1,000 (this will include your SE tax and income tax) in tax liability in the year then you should be making quarterly estimated tax payments. These are due April 15, June 15, Sept 15 and Jan 15. If you do not make these estimated tax payments you could be subject to a penalty from the IRS.


You don’t have to pay estimated tax for the current year if you meet all three of the following conditions.

  • You had no tax liability for the prior year
  • You were a U.S. citizen or resident for the whole year
  • Your prior tax year covered a 12-month period

Here is what the IRS states about making payments, "Using the Electronic Federal Tax Payment System (EFTPS) is the easiest way for individuals as well as businesses to pay federal taxes. Make ALL of your federal tax payments including federal tax deposits (FTDs), installment agreement and estimated tax payments using EFTPS. If it’s easier to pay your estimated taxes weekly, bi-weekly, monthly, etc. you can, as long as you’ve paid enough in by the end of the quarter. "

There may be more variations and additions to the above steps if you are a church employee, a farmer, or receive social security income. Look for Form 1040-ES instructions for more detailed information.

The question then becomes, "how do I lower my SE tax liability?" This answer is simple. Take every deduction that you possibly can!
Hope this helps.



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Tips for a Smooth Tax Season

By Vanessa Ledesma • January 3, 2024
It is time to gather your tax information for filing. Items you'll need include W-2s, 1099s, K-1s and other forms you receive from your business, employers, brokers, banks, and others. If you find any errors, contact the issuer immediately to request a corrected copy. Organize your records. Once you've started gathering your information, find a place to put all the documents as you receive them, or consider scanning documents to store securely in the cloud. If you are a tax client, start uploading them to your secure client portal. Missing information is one of the biggest reasons filing a tax return is delayed. Create an April 15th reminder. This is the deadline for filing your 2023 individual income tax return, completing gift tax returns, making contributions to a Roth or traditional IRA for 2023, and for paying the first installment of 2024 individual estimated taxes. Create a reminder that works for you. Know the deadlines for business returns. If you are a member in a partnership or a shareholder in an S corporation, the deadline for filing these business returns is March 15th. Calendar-year C corporation tax returns are due by April 15th. Clean up your auto log. Create and review the necessary logs to support your qualified business miles, moving miles, medical miles and charitable miles driven by you. Gather the logs and make a quick review to ensure they are up to date and totaled. Review your child's income. Your child may be required to file a 2023 income tax return. A 2023 return is generally required if your child has earned more than $13,850, or has investment income such as dividends, interest, or capital gains that total more than $1,250. If your child had withholdings taken out of their pay, it is wise to have them file as a dependent regardless of their income as they could be entitled to receive those withholdings back as a tax refund. Contribute to your IRA and HSA. You can still make 2023 IRA and HSA contributions through either April 15th or when you file your tax return, whichever date is earlier. The maximum IRA contribution for 2023 is $6,500 ($7,500 if age 50 or older). The maximum HSA contribution is $3,850 for single taxpayers and $7,750 for families. Calculate your estimated tax if you need to extend. If you file an extension, you'll want to do a quick calculation to estimate your 2023 tax liability. If you owe Uncle Sam any money, you'll need to write a check by April 15th even if you do extend. If you have no idea how to estimate your taxes do, contact us.

BE PREPARED FOR TAX SEASON BEFORE YEAR END

By Vanessa Ledesma • July 10, 2019
This post is to help individuals prepare for tax time before tax time is here.

Attention small businesses, it's tax time!

By Vanessa Ledesma • February 21, 2019
1. Comparative Financial Statements (Income Statement & Balance Sheet) 2. Assets purchased or sold throughout the year 3. Business expenses paid out of your personal account (I advise against this) 4. Details about your home office (if you have one) 5. Vehicle business use mileage logs for the year Already have a headache just thinking about all of this? We are here to help! Let Affinity Accounting Solutions LLC provide accurate bookkeeping services for you and prepare your tax return, or we can work with your favorite CPA to get them the information they need to file your tax return. Either way, let us help you take the headache out of tax time.

Something to Think About

By Vanessa Ledesma • February 10, 2019
“The significant problems we face cannot be solved at the same level of thinking we were at when we created them.” -Albert Einstein

Almost tax time. 

By Vanessa • January 5, 2019
Save money this tax season by preparing your books in advance. Provide your accountant with all the necessary forms and documents ahead of time. Chances are if your accountant is waiting on you and has to send emails or message you back and forth to request additional information than you are looking at additional billing. Provide all the end of year bank statements, credit card statements, and loan statements as soon as you close your December's books. Double check your outstanding checks for items that probably will never clear the bank, and therefore need to be voided. Don't forget to check your accounts receivable balances. Do you need to write anything off? Someone else handling your payroll? Great, however don't forget to provide your accountant copies of your W-3 & W-2s issued. Did you purchase new business assets throughout the year? Don't forget to mention these new purchases to your accountant. Also mention ones you sold or disposed of as well. Preparation is key for tax time. It will save you hundreds on your taxes.
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