How to Calculate Self-Employment Tax
What is Self-Employment Tax?
Self-employment tax covers Social Security and Medicare for freelancers who pay both employee and employer portions. In the UK, Class 2 and Class 4 NI applies.
Formula
Self-employment tax = Net income × 92.35% × 15.3%; (Both employer + employee portion of Social Security + Medicare); Deduction = SE tax × 50%
- NetIncome
- Net business income (Currency)
- SEtax
- Self-employment tax (Currency)
- SS
- Social Security portion (12.4%) (Currency)
- Medicare
- Medicare portion (2.9%+) (Currency)
Step-by-Step Guide
- 1US: SE tax = Net profit × 15.3% (SS 12.4% + Medicare 2.9%)
- 2Deduct half of SE tax from taxable income
- 3UK Class 4 NI: 9% on profits £12,570–£50,270
- 4Quarterly estimated payments required in the US
Worked Examples
Input
US: $80,000 net self-employment profit
Result
SE tax ≈ $11,304; deduct $5,652 from taxable income
Frequently Asked Questions
Why is self-employment tax so high?
You pay both employee (7.65%) and employer (7.65%) portions = 15.3%. W-2 workers split with employer; you pay all. SE tax deduction offsets some (0.5 × SE tax).
Can I deduct business expenses before SE tax?
Yes. Calculate: Gross income − Business deductions = Net income. Apply SE tax to net. Deductible expenses reduce both income tax and SE tax.
What about Medicare surtax (3.8%)?
Additional 0.9% Medicare tax on earnings > $200k (single) or $250k (married). Plus 3.8% Net Investment Income Tax on unearned income. Cumulative rates hit high earners hard.
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