Self-Employment Tax Calculator

What is Self-Employment Tax?

Self-Employment Tax (SE tax) is a tax that self-employed individuals pay to cover Social Security and Medicare taxes. It's similar to the payroll taxes that employers withhold from their employees' paychecks, but self-employed individuals are responsible for both the employer and employee portions of these taxes.

The Self-Employment Tax Formula

The formula for calculating self-employment tax is:

\[SE Tax = (Social Security Tax) + (Medicare Tax)\] Where: \[Social Security Tax = min(Net Earnings \times 12.4\%, Social Security Wage Base \times 12.4\%)\] \[Medicare Tax = Net Earnings \times 2.9\%\]

Net Earnings: Your net profit from self-employment

Social Security Wage Base: The maximum amount of earnings subject to Social Security tax ($142,800 for 2021)

Step-by-Step Tax Calculation

1. Calculate your net earnings from self-employment.
2. Calculate your Social Security tax:
   • Multiply your net earnings by 12.4%
   • If this amount exceeds the Social Security wage base multiplied by 12.4%, use the latter amount
3. Calculate your Medicare tax by multiplying your net earnings by 2.9%.
4. Add the Social Security and Medicare taxes to get your total self-employment tax.
5. Calculate your effective tax rate by dividing the total tax by your net earnings and multiplying by 100%.

Example Calculation

Let's calculate the self-employment tax for a self-employed individual with net earnings of $75,000:

1. Social Security Tax: \($75,000 \times 12.4\% = $9,300\)
2. Medicare Tax: \($75,000 \times 2.9\% = $2,175\)
3. Total SE Tax: \($9,300 + $2,175 = $11,475\)
4. Effective Tax Rate: \(\frac{$11,475}{$75,000} \times 100\% = 15.3\%\)

Visual Representation

The green portion represents the Social Security tax (12.4%), and the blue portion represents the Medicare tax (2.9%), totaling 15.3% of net earnings.