How Much Is Self-Employment Tax: Rates for Sole Proprietors, Single-Member LLCs, and S Corporations

This article is part of BizTaxFacts, our Business Tax series on navigating taxes for self-employed individuals and small businesses. We’ll break down tax obligations and considerations, including deductions, credits, and filing across different working arrangements.

The Self-Employment Tax Reality: Being your own boss means handling your own taxes and paying self-employment tax, which can be a significant financial burden if you don’t plan for it. In this article, we’ll cover who pays self-employment tax, how it’s calculated, and ways to reduce your tax obligation as a self-employed individual.

What You Need to Know

• You are responsible for paying self-employment tax, which can range from 12.4% to 15.3% of your net earnings.
• You may be able to deduct business expenses, such as home office expenses and travel expenses, on your tax return.
• Sole proprietors must file Schedule C and Schedule SE to report business income and expenses, and to calculate self-employment tax.
• While there is no self-employment tax credit, one half of the self-employment tax paid is deductible as an adjustment to income, which can help reduce your overall income tax liability.
• Don’t wait until tax season – make estimated tax payments throughout the year to avoid penalties and interest.

What is Self-Employment Tax?

Self-employment tax, also known as SECA tax (Self-Employment Contributions Act tax), is a type of payroll tax that funds Social Security and Medicare. As a self-employed individual, you’re responsible for paying both the employer and employee portions of this tax, which can range from 12.4% to 15.3% of your net earnings from self-employment.

💡Learn more about self-employment tax.

Who Needs to Pay Self-Employment Tax?

You’ll need to pay self-employment tax if you earned $400 or more in net earnings from self-employment in the tax year. This includes income from:

• Freelance work
• Consulting
• Online sales
• Ride-sharing or driving services
• Renting out property on Airbnb or VRBO
• Selling products or services as an independent contractor

💡Learn more about self-employment tax vs. income tax.

How is Self-Employment Tax Calculated?

To calculate your self-employment tax, you’ll need to complete Schedule SE (Form 1040) and include it with  your tax return. You are required to report your net earnings from self-employment, which includes:

• Schedule C (Form 1040) net profit or loss from self-employment
• Form 1099-NEC, Box 1 (non-employee compensation)
• Form K-1, Box 14 (partner’s distributive share of self-employment income)

💡Learn more about calculating your self-employment tax.

Smart Ways to Lower Your Tax Bill

As a self-employed individual, you may be able to deduct business expenses on your tax return, which can help reduce your self-employment tax liability. Common business expenses include:

• Home office expenses
• Business travel expenses
• Equipment and supplies
• Advertising and marketing expenses

💡Learn more about reducing self-employment taxes.

A Deduction You Might Miss

Did you know that you can deduct 50% of your self-employment tax as an adjustment to income on Schedule 1 (Form 1040)? This can help reduce your income tax liability, not your self-employment tax liability. For example, if you owe $10,000 in self-employment tax, you can deduct $5,000 as an adjustment to your income.

💡Learn more about the top deductions for self-employed individuals.

Sole Proprietorship Taxes: The Essentials

As a sole proprietor, you’re considered self-employed and are required to report your business income and expenses on your personal tax return (Form 1040). Here’s a quick review to get you started:

• What is a sole proprietorship? A sole proprietorship is a type of business ownership where one individual owns and operates the business.
• How are sole proprietorships taxed? As a sole proprietor, your business income and expenses are reported on your personal tax return (Form 1040).
• What forms do I need to file? You’ll need to file Schedule C (Form 1040) to report your business income and expenses, and Schedule SE (Form 1040) to calculate your self-employment tax.

💡Learn more with our beginner’s guide to sole proprietorship taxes.

Staying Ahead with Estimated Taxes

As a self-employed individual, you’re required to make estimated tax payments if you expect to owe more than $1,000 in self-employment tax for the year. You’ll need to file Form 1040-ES by the due dates:

• April 15th: For income earned from January 1 to March 31
• June 15th: For income earned from April 1 to May 31
• September 15th: For income earned from June 1 to August 31
• January 15th: For income earned from September 1 to December 31

Note that if any of these dates fall on a weekend or holiday, the due date is pushed to the next business day.

💡Learn more about estimated taxes.

Your Self-Employment Tax Questions Answered

Q: What is self-employment tax?

A: Self-employment tax, also known as SECA tax (Self-Employment Contributions Act tax), is a type of payroll tax that funds Social Security and Medicare. As a self-employed individual, you’re responsible for paying both the employer and employee portions of this tax.

Q: Who has to pay self-employment tax?

A: You’ll need to pay self-employment tax if you earned $400 or more in net earnings from self-employment in the tax year. This includes income from freelance work, consulting, online sales, and more.

Q: How do I calculate my self-employment tax?

A: To calculate your Self-Employment Tax, you’ll need to complete Schedule SE (Form 1040) and attach it to your tax return. You also need to report your net earnings from self-employment, which includes Schedule C (Form 1040) net profit or loss from self-employment, and other sources.

Q: Can I deduct my home office expenses as a business expense?

A: Yes, you may be able to deduct a portion of your rent or mortgage interest and utilities as a home office expense. You can use the home office deduction or the home office simplified option.

Q: What forms do I need to file for self-employment tax?

A: As a self-employed individual, you’ll need to file Schedule SE (Form 1040) to calculate your Self-Employment Tax, and attach it to your tax return. You may also need to file Form 1040-ES to make estimated tax payments if you owe more than $1,000 in Self-Employment Tax.

File with Confidence Today

Self-employment tax can be a complex and overwhelming topic, but with the right resources and planning, you can stay on top of your obligations and avoid costly penalties. Remember to:

• Calculate your self-employment tax liability using Schedule SE (Form 1040)
• Deduct business expenses on Schedule C (Form 1040)
• Make estimated tax payments using Form 1040-ES

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