What is self-employment tax?
Self-employment tax is a tax that self-employed individuals must pay to the government to fund Social Security and Medicare. It is similar to the Social Security and Medicare taxes that are withheld from the paychecks of employees, but self-employed individuals are responsible for paying both the employer and employee portions of these taxes.
How is self-employment tax calculated?
Self-employment tax is calculated based on your net earnings from self-employment. This includes income from any business you own or operate as a sole proprietor, as well as income from freelance work or other self-employed activities. The tax rate for self-employment tax is currently 15.3%, which includes 12.4% for Social Security and 2.9% for Medicare. However, you may be able to deduct half of your self-employment tax on your income tax return.
When do I have to pay self-employment tax?
Self-employment tax is typically paid quarterly, along with estimated income tax payments. If you expect to owe more than $1,000 in taxes for the year, you may need to make quarterly estimated tax payments to avoid penalties and interest. The due dates for these payments are typically April 15, June 15, September 15, and January 15 of the following year.
Are there any exemptions or deductions for self-employment tax?
There are some exemptions and deductions that may reduce your self-employment tax liability. For example, if you have business expenses that are directly related to your self-employment income, you may be able to deduct them on your tax return. Additionally, if you have a net loss from self-employment, you may not owe any self-employment tax for that year. However, it is important to consult with a tax professional to determine which deductions and exemptions apply to your specific situation.
