Self-Employment Tax: How To Calculate And File For 2022
Dan Rafter6-minute read
November 22, 2022
Working as a freelancer or independent contractor comes with plenty of perks: You’re your own boss. You can set your hours and goals. You can build your business in your own way. But working as a self-employed entrepreneur comes with challenges, too. And one of the biggest is taxes.
When income tax time rolls around, you’ll be on the hook for a larger chunk of state and federal income taxes. That’s because you’re responsible for covering both your self-employment tax and your regular income tax. If you’re not careful, you could face a big bill come tax time.
What Is The Self-Employment Tax?
The self-employment tax for the 2021 tax year – the taxes most people will be paying by April 18 of 2022 – stands at 15.3%. This covers your Social Security and Medicare taxes.
If you were working a typical full-time job, your employer would take your Social Security and Medicare taxes out of your paychecks each pay period. Your employer would also pay for half of those taxes.
As a self-employed worker, though, you act as both your own employees and employer. Because of this, you're responsible for covering the entire 15.3% of these taxes.
You're also responsible for paying your normal income tax rates in addition to the self-employment tax. There are seven tax brackets for the 2021 tax year. Depending on your income or filing status, you'll have to pay from 10% of your 2021 income in taxes to 37%.
As an example, if you earned $40,256 – $86,375 and are filing your taxes as a single filer, you'll fall into the 22% tax bracket, meaning you'll pay 22% of your income in income taxes, in addition to the 15.3% self-employment tax.
If you earned $81,051 – $172,750 as a married couple filing jointly, you'll again fall into the 22% tax bracket.
How Much Is The Self-Employment Tax For 2022?
For the 2021 tax year, you'll pay 15.3% of your net freelance income in self-employment taxes. That comes out to 12.4% for Social Security taxes and 2.9% on Medicare taxes.
The good news? Depending on how much you earned, not all of your self-employment income is hit by all of the self-employment tax. For the 2021 tax year, only the first $142,800 of your self-employment earnings are subject to the Social Security portion of the self-employment tax. That will rise to $147,000 in the 2022 tax year.
You might, though, have to pay more in Medicare tax if you earned a high amount of self-employment income. For the 2021 tax year, you'll have to pay an additional Medicare tax of 0.9% if your net earnings from self-employment are higher than $200,000 if you are a single filer or $250,000 if you are married and filing jointly.
Who Pays The Self-Employment Tax?
You'll pay self-employment taxes if you made $400 or more in net earnings from self-employment, including as a business owner, freelancer or independent contractor. Many self-employed workers receive IRS 1099 forms from their clients that state how much they paid them throughout the tax year.
You'll also pay self-employment taxes if you earned $108.28 or more in income from working with a church.
It's possible to earn both self-employment income and income from a full-time job in the same year. Many people today work both full-time for an employer and run a side hustle. For instance, taxpayers might work in an office five days a week but also drive for a ride-sharing app on evenings and weekends. That ride-sharing income is considered self-employment income.
How Is The Self-Employment Tax Calculated?
Wondering how much you'll pay in self-employment taxes for the current tax year? Here are the steps to calculate this figure:
- Determine your net earnings. Subtract your business expenses and deductions from your gross income.
- If that number is higher than 0, multiply it by 92.35%, the amount of your self-employment income that is subject to the self-employment tax.
- Multiply that number by the current self-employment tax rate. For the 2021 tax year – payable on April 18 of 2022 – the rate stood at 15.3%.
- This final number is the self-employment tax you owe.
For assistance in determining your self-employment tax, you can use the Schedule SE tax form from the IRS.
Self-Employment Tax Calculator
Here's an example of how these calculations might work:
Say you earned a net income of $20,000 last year while working as a freelance photographer.
To determine your self-employment tax, multiply this net income by 92.35%, the amount of your self-employment income subject to taxes. This gives you $18,740.
Multiply this figure of $18,740 by 15.3%. This gives you $2,826. This is the self-employment tax you'll pay for the most recent tax year.
Of this figure, you'll be paying $2,290 in Social Security tax and $536 in Medicare tax.
Remember, too, that you'll also have to pay income taxes on the $20,000 that you've earned. If you are filing as a single taxpayer or are married and filing jointly, you'll fall into the 12% tax bracket on that $20,000 of freelance income.
How To File The Self-Employment Tax
You’ll have to follow certain steps when filing your income taxes when you are self-employed.
First, use IRS Form 1040 Schedule C to report the earnings from your business.
Next, fill out IRS Form 1040 Schedule SE to calculate your self-employment taxes.
You’ll then need to file your income taxes. If you make self-employment income, you should fill out IRS Form 1040 to file your taxes. That’s because you’ll deduct expenses from your self-employment income – reducing your tax burden -- and this form allows you to include those deductions.
To file your taxes, you’ll need a Social Security number of an individual taxpayer identification number, better known as your ITIN.
You'll probably need to pay estimated taxes, too. If you rely on self-employment income, you generally need to pay estimated taxes once a quarter in an amount that depends on your yearly self-employment income.
The goal is to pay enough each quarter to make sure you don't owe too much in taxes when you file on April 18. Most self-employed people will have to make estimated payments if they expect to owe $1,000 or more in taxes when they file their annual returns.
The best way to pay these taxes is through the IRS' Direct Pay feature. You can pay send money directly from your bank account or pay with a debit or credit card. You can also send the IRS a check or pay by phone.
You'll pay estimated taxes on April 15, June 15, Sept. 15 and Jan. 15 of the following year.
Self-Employment Tax Deductions
One of the tax benefits of working for yourself is that you can deduct several expenses. This reduces your net earnings and your tax burden. It’s important, then, to take advantage of all the tax deductions to which you are legally entitled. Some of the most important include:
- Home office deduction: If you work from your home, you can take advantage of the home office deduction. To do this, you’ll have to determine the square footage of your office. The IRS also requires that you use the space “regularly and exclusively” as a home office. You can’t, then, use a room as both a home office and a bedroom.
- Travel and vehicle use deductions: You can deduct the cost of flights to business-related conferences and meetings. You can deduct the cost of hotel stays, car rentals and train tickets. If you use your car for business, you can deduct a portion of the miles you’ve put on your car when traveling for work, repairs and gas purchases.
- Meals deduction: In general, you can deduct 50% of the cost of meals you purchase for business purposes. You can’t deduct meals that you eat at home.
- Health insurance premium deduction: You might be able to deduct your health-insurance premiums if you are self-employed.
- Rent deduction: If you rent office space for your business, you can deduct your rent payments from your business income. You can also deduct any rent payments you make for tools or other equipment for your business.
The Bottom Line
Filing income taxes is more complicated when you rely on self-employment income. But if you follow the rules, and take the deductions to which you are entitled, you can ease some of this uncertainty and reduce the amount you’ll need to send to the IRS each year. Remember, too, that there are plenty of tax deductions for homeowners that can also reduce your overall tax burden.
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