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For the 2022 tax year, you’ll pay 15.3% of your net freelance income in self-employment taxes. That comes out to 12.4% for Social Security taxes and 2.9% on Medicare taxes. US Mastercard Zero Liability does not apply to commercial accounts . Conditions and exceptions apply – see your Cardholder Agreement for details about reporting lost or stolen cards and liability for unauthorized transactions. See Online and Mobile Banking Agreement for details.
Estimated taxes can be paid through the year, with a final calculation and payment made when an annual tax form is filed. In addition to income taxes, the self-employment tax must also be calculated and paid.
If your net earnings are below the Social Security wage base:
They’re responsible for collecting personal and corporate income tax for the State of California. If your business has employees, you will have additional tax obligations beyond estimated quarterly tax payments. Discuss your situation with a tax professional to determine any additional requirements you may be responsible for. You are self-employed if you operate a trade, business, or profession, either by yourself or as a partner. You report your earnings for Social Security when you file your federal income tax return. If your net earnings are $400 or more in a year, you must report your earnings on Schedule SE.
The Social Security tax is only applied to the first $147,000 of self-employment income earned, for a maximum tax of $18,228 in 2022. That amount increases for 2023 and is only applied to the first $160,200 of income for a total tax of $19,864.80. If you use part of your home for business, you may be able to deduct expenses for the business use of your home. The home office deduction is available for homeowners and renters, and applies to all types of homes.
How Do I Report the Self-Employment Tax?
The SE tax includes the Social Security and Medicare payments typically withheld by employers. If you earned $400 or more in a year as a business owner or sole proprietor, you must pay Social Security and Medicare taxes to the federal government. To calculate your self-employment tax, start by finding your net earnings from self-employment. You can calculate your net earnings for tax purposes by subtracting your business expenses from business income. This is generally done by filling out a Schedule C as part of IRS Form 1040, your federal income tax return.
You can use our free self-employment tax calculator otherwise we’ll show you how to calculate your tax either way. When you make the transition to being a self employed business owner, you’re responsible for self-employment self employment tax tax. But before the thought of another tax responsibility starts stressing you out, we’ve simplified everything you need to know about calculating, filing, and paying your self-employment taxes.
How to avoid or reduce self-employment tax
A self-employed person with a total net income of exactly $137,700 in 2022 would have to remit taxes of $21,068.10 ($137,700 x 15.3%). Medicare tax is assessed at a rate of 1.45% for an employer and 1.45% for the employee. Therefore, a self-employed worker is taxed 2.9% (1.45% + 1.45%) as they are considered to be both an employer and an employee. Social Security tax is assessed at a rate of 6.2% for an employer and 6.2% for the employee. Therefore, a self-employed worker is taxed 12.4% (6.2% + 6.2%) as they are considered to be both an employer and an employee. Individuals who are self-employed and earn less than $400 a year (or less than $108.28 from a church) are exempt from paying the self-employment tax.
