If you work for yourself, you may have to pay self employment tax. This could mean you are an independent contractor for a company (rather than an employee), are paid to do work as a freelancer, or run a business.
Below is key information about self-employment taxes, and how to calculate.
💡We recommend that all self-employed individuals learn how they will need to calculate and pay taxes as soon as they start their business or become an independent contractor, so that they can start tracking the information needed to complete the filing, set aside money as needed, and make quarterly tax payments, if necessary.
The self-employment tax rate is 15.3%: this includes the FICA taxes mentioned in
. For employees, FICA Taxes are split between the employee and the employer, each paying half. Since you are your own employer, you pay the full amount.
The self-employment tax applies to your net earnings, so after accounting for business or self-employment expenses your income paid for.
Self-employment tax is paid in addition to income tax. Up to 50% of your self-employment tax might be deductible from your income tax. You will need to calculate and pay income taxes according to your tax bracket.
You’ll use Schedule C to report self-employment tax and Form 1040 to report income tax. Schedule C reports profit or loss from business operations, and is generally required by LLCs and sole proprietorships. You’ll attach your Schedule C to your Form 1040.
If you’re self-employed, you may need to pay estimated taxes quarterly, if you expect to owe at least $1,000 in federal income tax, and the amount withheld plus refundable credits will cover less than 90% of your tax liability for this year or 100% of your liability last year.
Self-Employment Taxes