Self-Employment Tax Calculator

Self-employed individuals in the U.S. are responsible for paying both the employer and employee portions of Social Security and Medicare taxes. These are collectively known as Self-Employment Tax. This blog explains how to calculate your tax liability, the formulas involved, and includes a detailed example.

What is Self-Employment Tax?

Self-employment tax is the tax paid by freelancers, independent contractors, small business owners, and gig workers. It includes:

• 12.4% for Social Security
• 2.9% for Medicare
• Additional 0.9% Medicare tax (on income over $200,000 for individuals)

Formula 1: Net Self-Employment Income

To calculate your taxable self-employment income:

$\text{Taxable Income}=\text{Net Earnings}-\text{Deductible Expenses}$

Formula 2: Self-Employment Tax (SE Tax)

Only 92.35% of net earnings are subject to SE tax:

$\text{SE Tax}=(\text{Taxable Income}\times 0.9235)\times (0.124+0.029)$

Formula 3: Social Security Portion

Social Security tax applies up to a wage base limit (e.g., $168,600 in 2024):

$\text{SS Tax}=min(\text{Taxable Income}\times 0.9235,\text{Wage Limit})\times 0.124$

Formula 4: Medicare Portion

Medicare tax has no income limit:

$\text{Medicare Tax}=(\text{Taxable Income}\times 0.9235)\times 0.029$

Formula 5: Deduction for Employer-Equivalent Portion

You can deduct half of the SE tax when calculating your adjusted gross income:

$\text{Deduction}=\frac{\text{SE Tax}}{2}$

Example Calculation

Let’s say your net earnings from self-employment are $80,000 and deductible expenses are $5,000.

Step 1:

Taxable Income = 80,000 − 5,000 = $75,000

$\text{Taxable Income}=80,000-5,000=75,000$

Step 2:

92.35% of $75,000 = $69,262.50

Step 3:

• Social Security Tax = min(69,262.50, 168,600) × 12.4% = $8,588.55

$\text{SS Tax}=69,262.50\times 0.124=8,588.55$

• Medicare Tax = 69,262.50 × 2.9% = $2,008.61

$\text{Medicare Tax}=69,262.50\times 0.029=2,008.61$

Step 4:

Total SE Tax = 8,588.55 + 2,008.61 = $10,597.16

$\text{SE Tax}=8,588.55+2,008.61=10,597.16$

Step 5:

Deduction = $10,597.16 ÷ 2 = $5,298.58

$\text{Deduction}=\frac{10,597.16}{2}=5,298.58$

Final Output:

• Self-Employment Tax: $10,597.16
• Social Security Portion: $8,588.55
• Medicare Portion: $2,008.61
• Deduction (Employer-Equivalent): $5,298.58