Designated workers, sole proprietors and self-employed persons all pay the Medicare and Social Security tax though their self-employment tax. If you are one of these individuals and you would want to know your self-employment tax, here are some of the steps as to how you can calculate your self-employment tax.
The first step is to know what your self-employment net income is. Net income typically refers to business receipts less your business deductions. The second thing that you must do is to multiply your self-employment net income by 0.9235 or 92.35%. The product will be your “net earnings” from your self-employment. In case the answer is lesser than $400, there will be no need for you to pay a tax for self-employment.
In step three, if your net income is $76,200 or less, you will multiply it with 0.153 or 15.3%. If it is more than $76,200, you will multiply it with 0.029 or 2.9%. Add the two answers and it will be your corresponding self-employment tax.
In the fourth step, you will have to factor your deductions. To determine your adjusted gross income, you will deduct your self-employment tax. You will be doing this in 1040’s Adjustments section. Things that are not covered by self-employment tax include dividends, interest, rental income, capital gains, pensions and other unearned incomes. And after you have done all of these, the last step is for you to report your computed self-employment tax on 1040’s Schedule SE.
Calculating your self-employment tax is also very important. This way, you will know what you need to pay and you can already set aside the money for this particular payable. Budgeting your money will also be a lot easier when you know how much you will use for taxes and how much will be allotted for your family’s needs.