As noted, the tax rate on self-employment is 15.3% of net earnings. That rate is the sum of a 12.4% Social Security tax and a 2.9% Medicare tax on net earnings. Self-employment tax is not the same as income tax. With a subscription, you'll also have access to unlimited, on-demand consultations to get tax advice from a professional who will ensure that your tax filing is the smoothest to date.
With TurboTax Live Full Service Premium, have a specialized expert discover all the tax deductions and file your taxes on investments and self-employment. Form 1040-ES also contains blank receipts that you can use when mailing your estimated tax payments, or you can make your payments using the Electronic Federal Tax Payment System (EFTPS). Since self-employment taxes apply to net earnings rather than your gross income, deductible business expenses will reduce your tax liability. The tax code allows self-employed workers to deduct half of their total self-employment taxes as a deduction above the line.
At the end of the year, your accounting team will make one final review call to ensure that your information is accurate before preparing the CPA-approved reports that you can use to file taxes on your own or send them to a tax professional. In general, the term self-employment tax only refers to Social Security and Medicare taxes and not to any other taxes (such as income tax). It's similar to the FICA tax that employers withhold from their employees' paychecks as payroll taxes. When you pay self-employment taxes, you actually get a tax deduction for your federal income tax return.
Some members of an LLC can reduce their tax burden on self-employment if they choose to have their LLC taxed as an S corporation. Use the worksheet found on Form 1040-ES, Estimated Personal Tax, to find out if you should file the quarterly estimated tax. This is because the owners of an S corporation pay Social Security and Medicare taxes only on their salary, while the members of the LLC pay self-employment taxes on 100% of their share of the profits of the LLC. When you are self-employed, you assume the full burden of paying payroll taxes and paying your estimated income tax liability in advance.
You can deduct 50% of your self-employment tax bill from your adjusted gross income and reduce the amount of taxes you owe. But before the thought of having another tax liability starts to stress you out, we've simplified everything you need to know about calculating, reporting and paying your self-employment taxes.
