How to Figure Self-Employement Taxes
If you're an employee of a company, your employer pays your Medicare and Social Security tax. However, self-employed people and sole proprietors must pay their Medicare and Social Security taxes through self-employment taxes. This article will explain how to figure self-employment taxes.
Figure out your net income from self-employment: Net income is defined as your self-employment earnings minus your business deductions. Business deductions are considered anything that you use to carry out your business, such as the cost of paper and ink cartridges if you use your printer a lot for your business, or a percentage of your rent or mortgage payment and utilities if you work out of your home.
Multiply your net income by 0.9235, or 92.35%: The answer is called your net earnings. If this number is less than $400, then you don't have to pay self-employment tax.
Multiply the amount of your net earnings that is $76,200 or less by 0.153 (15.3%), and multiply any net earnings over $76,200 by .029 (2.9%) and add the two answers together: The sum of these two numbers is your self-employment tax. Report this tax on Schedule SE of Form 1040.
Factor in deductions: Half of your self-employment tax can be deducted when you're determining your adjusted gross income. This can be figured in the adjustments section of Form 1040.