Self-Employment Tax
As a self-employed individual, you will be responsible for calculating and paying Self-Employment Tax, Federal Income Tax, and State Income Tax. Let’s explore.
What is Self-Employment Tax?
Self-Employment Tax is Social Security and Medicare taxes on the net income of self-employed people.
When you are employed by a company, you pay half of these taxes in what is commonly known as FICA (Federal Insurance Contribution Act). Your employer pays the other half (called “payroll taxes” to them). The rates are shown in the table below.
| Payor | Social Security | Medicare | Total |
|---|---|---|---|
| Employee | 6.2% | 1.45% | 7.65% |
| Employer | 6.2% | 1.45% | 7.65% |
| Total | 12.4% | 2.9% | 15.3% |
You will owe Social Security taxes on income up to the “Taxable Wage Base,” which is $147,000 in 2022 (per individual). Taxable income above that amount is not subject to Social Security taxes.
You will owe Medicare taxes on all income. You will also owe the Additional Medicare Tax of 0.9% on income above the threshold. The threshold for 2022 is:
- Married Filing Jointly: $250,000
- Single, Head of Household, or Qualifying Widow(er): $200,000
- Married Filing Separately: $125,000
As a Self-Employed Individual, you owe both sides of Social Security and Medicare Taxes on self-employment net income.
Self-Employment Taxes are 15.3% of Net Self-Employment Income.
Again, that is net income: your gross income minus your business expenses.
How to Calculate Self-Employment Tax and Other Tax
First, you owe 15.3% on net income. Through a series of tax forms, those taxes are going to appear on your 1040 as Additional Taxes on Line 23 (for the year 2021).
Keep up with your gross revenue and expenses in your business, as you will need to calculate this tax at least quarterly.
Your net income will ultimately hit Line 8 of your household 1040. From there, it will be subject to adjustments, the standard or itemized deduction, and credits to determine your Federal and State Income Tax. You may want to have a tax professional help you calculate these. You can also view or download or Quick Reference Tax Guide.
Taxes are finalized at the end of the tax year, but you will need to make quarterly estimated tax payments four times through the year. Failing to do so can result in penalties and interest.
Paying Estimated Taxes
You will need to pay estimated taxes for each quarter by the due date. Notice that the quarters for estimated taxes are not calendar quarters. Below are the quarters and the due dates for each estimated payments.
Estimated Tax Due Dates
| Quarter | Estimated Tax Due Date |
|---|---|
| January 1 – March 31 (3 Months) | April 15 |
| April 1 – May 31 (2 Months) | June 15 |
| June 1 – August 31 (3 Months) | September 15 |
| September 1 – December 31 (4 Months) | January 15 (following year) |
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The easiest way to pay estimated taxes is to submit them online.
Submitting Federal Estimated Income Tax Payment
Use the IRS Direct Pay system to submit estimated taxes online. Select “Estimated Tax” for the Reason. The other two should default correctly, but double-check that the year is correct.
Submitting WI State Estimated Income Tax Payments
Pay WI State Estimated Income Tax using their Quick Pay system.
Submitting MN State Estimated Income Tax Payments
Pay MN State Estimated Income Tax using their Quick Pay system.
Have other questions? Email us at Team@LaxFP.com, and we’ll get back to you.
This article is educational only and is not intended to be investment, legal, or tax advice or recommendations, whether direct or incidental. Again, this is not investment advice. Consult your financial, tax, and legal professionals for specific advice related to your specific situation. Never take investment advice from someone who doesn’t know you and your specific situation.