Self Employment Tax Calculation For Short Form Users

Despite the fact that you pay more taxes self employment does have it own set of advantages. I sure you are aware of them. But now it is time to get you taxes in order so that means you would most likely be using form 1040 Schedule SE. There is a long version calculation on page 2 but that is mainly for church employees, ministers, and clergy.

Since you are a self employed person you do not get the same benefits as an employee. You must pay the full 15.3% of taxes not the 7.65% employees pay. That is 12.4% for Social Security tax on the first $87,900 of earnings and 2.9% of Medicare tax on all earnings. Normally your employer would spit this with their employees but since you are on your own then it is up to you. As you can see self employment tax can be little more work and cost you more. But their is a short form tax calculation that you can use to make this simple.

You start by taking you income you gained through last year and multiply then by 0.9235. This will tell you what your net earnings for self employment tax. If the total is less than $400 then you will not owe a thing.

Then you take your net earnings and multiply it by .0124. This will tell you what your social security tax is. Remember that you only have to do this for the first $87,900.

After that you take the full amount of your net earnings and multiply it by 0.029. This tells you what your Medicare tax is.

Take the two totals and add them up to get your total self employment tax.

Now here is where that self employment benefit kicks in. You get to divide that total by 2 as your self employment tax deduction.

Now there are other tax calculations that you can try if your income is less than certain amounts so try to calculate those as well. See which one gives you better results. At least it is nice to know that in the end you get a deduction so you will not have to pay as much as you think.

If you are one of those people who need to use the long version then don't worry. There is just a few more steps and it is quite simply to use. You can find it on the IRS website.