How Self-Employment Taxes Work
When you are self-employed, you are responsible for both the employer and employee portions of social security and medicare taxes, often referred to as the self-employment tax. This is in addition to standard income taxes. Navigating this can be complex, but a good rule of thumb is to set aside 25-30% of your gross earnings in a separate high-yield savings account or pay estimated quarterly taxes to the IRS.
Frequently Asked Questions
What is the self-employment tax rate?
In the US, the self-employment tax rate is 15.3% (12.4% for social security and 2.9% for medicare). However, you should also account for federal and state income taxes.
How do I pay my taxes?
Self-employed workers typically pay estimated taxes four times a year. If you expect to owe more than $1,000, you are generally required to make these quarterly payments.
Can I write off business expenses?
Yes! You only pay tax on your *net profit*. This calculator assumes you've already deducted expenses, or it applies the rate to simple gross income. Be sure to track every legitimate business expense to lower your bill.