Self Employment Tax Calculator (2020)

Last Updated August 14, 2020

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In 2020 you will owe a minimum of
$X,XXX in self-employment taxes.
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This is an estimate, and should not be considered tax or financial advice.

Freelance Taxes
The Ultimate Guide

This handy book will guide through best practices to follow when calculating your freelance taxes.

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FAQs about Self-Employment Taxes

Should I be paying taxes as a freelancer?

The Internal Revenue Service requires that all freelance income above $400 a year be reported, and that profit from income made as a freelance (or independent contractor) be subject to the appropriate tax rate. This means that you should count earned income in the form of cash, check, PayPal payments, or other methods of compensation and include it on your schedule C form. It doesn’t matter if you received a notification or statement of earnings from a company documenting your pay; not all earnings will trigger a tax form, so you need to be tracking all earnings on your own.

What you pay taxes on, however, will depend on the formula of business earnings minus business expenses (which gets you to your magical “profit” number.) You will only be taxed on that profit. It’s also wise to know what your tax liability is each year, and see if you may be required to make estimated quarterly tax payments. Generally, if you don’t think you’ll owe more than $1,000 in taxes – after subtracting federal income taxes – you probably won’t need to make quarterly payments. Remember that you can use Bonsai to calculate your self-employment tax deductions.

What’s the self-employment tax?

This is the tax amount paid on earnings from a sole proprietorship or partnership business that goes to Medicare and Social Security; it is also referred to as SECA. Since you are your own employer, you do not have a boss to take out (or withhold) this money from your check, so you must pay it yourself at tax time. You also pay at a higher rate than a traditionally-employed person, because you have no employer to pay part of the taxes for you.

How is the self-employment tax calculated?

The Self-Employment tax is calculated on 92.35% of your total income. This rate is derived from the fact that self-employed taxpayers can deduct the employer's portion of the tax, which is 7.65%.

The tax rate is currently 15.3% of your income, with 12.4% going to Social Security and 2.9% going to Medicare. The Social Security portion has a limit on how much of your income is taxed (currently $127,200 or less), whereas the Medicare portion does not. You must pay this tax if you’ve made money from your freelance business of $400 or more.

Here are the steps to calculating the self-employment tax.

Step 1: Calculate net earnings.

Gross earnings - business expenses = net earnings


Step 2: Calculate the amount that equals 92.35% of your net earnings, which is the amount subject to self-employment tax.

Net earnings X 92.35% = the amount subject to self-employment tax


Step 3: Calculate the Social Security portion of self-employment tax.

Only part of your earnings is subject to Social Security, which for 2020 is the first $137,700 of earnings.

Amount subject to self-employment tax (to a maximum of $137,700) X 12.4% = Social Security tax


Step 4: Calculate the Medicare portion of self-employment tax.

Amount subject to self-employment tax X 2.9% = Medicare tax


Step 5: Calculate the entire amount of self-employment tax owed

Social Security tax (Step 3) + Medicare tax (Step 4) = self-employment tax owed

What’s the Medicare tax?

This portion of the tax freelancers pay goes to fund the federal government’s Medicare program. It is used to provide subsidized health care and programs to retired Americans and to disabled individuals. Money from the Medicare program also subsidizes hospital insurance benefits. So, when you pay your self-employment tax, less than 3% of that money is going to this program.

What’s the Social Security tax?

Similar to the Medicare Tax, this is a portion of your self-employed tax that supports another government program – specifically, the Social Security program. Social Security is known for the cash benefits it provides to seniors, but it also plays a role in supporting the disabled and surviving spouses and children. One important thing to note is that Social Security Retirement Benefits are based on your highest 35 years of earnings in a lifetime. Your freelance income is counted into this formula; the more you make and report as a freelancer, the closer you’ll be to maxing out Social Security retirement benefits later in life!

How much will I have to pay if my calculated net earnings are $1000?

Step 1 - calculated net earnings of $1000

Step 2 - Net earnings $1000 X 92.35% = the amount subject to self-employment tax ($923.50)

Step 3 - Amount subject to self-employment tax ($923.50) X 12.4% = Social Security tax ($114.51)

Step 4 - Amount subject to self-employment tax ($923.50) X 2.9% = Medicare tax ($26.78)

Step 5 - Social Security tax ($114.51) + Medicare tax ($26.78) = self-employment tax ($141.29)

How much will I have to pay if my calculated net earnings are $2000?

Step 1 - calculated net earnings of $2000

Step 2 - Net earnings $2000 X 92.35% = the amount subject to self-employment tax ($1847)

Step 3 - Amount subject to self-employment tax ($1847) X 12.4% = Social Security tax ($229.03)

Step 4 - Amount subject to self-employment tax ($1847) X 2.9% = Medicare tax ($53.56)

Step 5 - Social Security tax ($229.03) + Medicare tax ($53.56) = self-employment tax ($282.59)

How much will I have to pay if my calculated net earnings are $5000?

Step 1 - calculated net earnings of $5000

Step 2 - Net earnings $5000 X 92.35% = the amount subject to self-employment tax ($4617.50)

Step 3 - Amount subject to self-employment tax ($4617.50) X 12.4% = Social Security tax ($572.57)

Step 4 - Amount subject to self-employment tax ($4617.50) X 2.9% = Medicare tax ($133.91)

Step 5 - Social Security tax ($572.57) + Medicare tax ($133.91) = self-employment tax ($706.48)

How much will I have to pay if my calculated net earnings are $10,000?

Step 1 - calculated net earnings of $10000

Step 2 - Net earnings $10000 X 92.35% = the amount subject to self-employment tax ($9235)

Step 3 - Amount subject to self-employment tax ($9235) X 12.4% = Social Security tax ($1145.14)

Step 4 - Amount subject to self-employment tax ($9235) X 2.9% = Medicare tax ($267.82)

Step 5 - Social Security tax ($1145.14) + Medicare tax ($267.82) = self-employment tax ($1412.96)

How much will I have to pay if my calculated net earnings are $25,000?

Step 1 - calculated net earnings of $25000

Step 2 - Net earnings $25000 X 92.35% = the amount subject to self-employment tax ($23.087.50)

Step 3 - Amount subject to self-employment tax ($23.087.50) X 12.4% = Social Security tax ($2862.85)

Step 4 - Amount subject to self-employment tax ($23.087.50) X 2.9% = Medicare tax ($669.54)

Step 5 - Social Security tax ($2862.85) + Medicare tax ($669.54) = self-employment tax ($3532.39)

How much will I have to pay if my calculated net earnings are $50,000?

Step 1 - calculated net earnings of $50000

Step 2 - Net earnings $50000 X 92.35% = the amount subject to self-employment tax ($46,175)

Step 3 - Amount subject to self-employment tax ($46,175) X 12.4% = Social Security tax ($5725.70)

Step 4 - Amount subject to self-employment tax ($46,175) X 2.9% = Medicare tax ($1339.08)

Step 5 - Social Security tax ($5725.70) + Medicare tax ($1339.08) = self-employment tax ($7064.78)

How much will I have to pay if my calculated net earnings are $75,000?

Step 1 - calculated net earnings of $75000

Step 2 - Net earnings $75000 X 92.35% = the amount subject to self-employment tax ($69,262.50)

Step 3 - Amount subject to self-employment tax ($69,262.50) X 12.4% = Social Security tax ($8588.55)

Step 4 - Amount subject to self-employment tax ($69,262.50) X 2.9% = Medicare tax ($2008.61)

Step 5 - Social Security tax ($8588.55) + Medicare tax ($2008.61) = self-employment tax ($10,597.16)

How much will I have to pay if my calculated net earnings are $100,000?

Step 1 - calculated net earnings of $10000

Step 2 - Net earnings $10000 X 92.35% = the amount subject to self-employment tax ($92,350)

Step 3 - Amount subject to self-employment tax ($92,350) X 12.4% = Social Security tax ($11,451.40)

Step 4 - Amount subject to self-employment tax ($92,350) X 2.9% = Medicare tax ($2678.15)

Step 5 - Social Security tax ($11,451.40) + Medicare tax ($2678.15) = self-employment tax ($14,129.55)

Should I be paying income taxes on top of my freelance tax?

Yes. It’s very important to understand that you will always pay self-employment taxes (those that contribute to the Social Security and Medicare programs) as long as you make more than $400 in a given tax year. You may also pay income taxes, which are figured out differently for different earning brackets. Since you will pay both income and self-employment taxes on profit made from your freelance business, it is beneficial to try to claim every legitimate business-related expense you can.

One other important rule of thumb is this: While those working for an employer can avoid even filing taxes if they make below the filing threshold, this is because they have money withheld from their paycheck to cover the Social Security and Medicare taxes (referred to as “FICA” when paid through your employer.) Since freelancers really have no easy way to withhold these taxes, they must pay them at the end of the year on a tax return, even if they made very little. Remember, anything earned over $400 will require you to file and pay the self-employment taxes -- regardless of whether you’ll owe actual income tax.

How do you pay self-employment tax?

The Internal Revenue Service (IRS), the federal taxing authority, provides tools for you to use to file and pay taxes. You use the IRS Schedule C to calculate net earnings, and then IRS Schedule SE to calculate how much self-employment tax you owe.

The IRS also requires you to make quarterly estimated tax payments throughout the year if you expect you will owe at least $1000 in federal income taxes. If you don’t make the estimated payments, you could be subject to a penalty. You’ll use IRS Form 1040-ES to make these payments.  

Either way, it’s a good idea to set aside some of your earnings throughout the year, so that you have money available when you do pay taxes.

How often should you calculate and re-evaluate your taxes?

If you’ve just started your business, you will need to estimate your net earnings in order to determine the self-employment tax and to make quarterly payments. If you’ve been in business, you will have a good sense of annual income to determine the quarterly payments.

The only time you should need to evaluate is when doing those quarterly estimated payments, and then you do the final calculation at tax time. 

However, it’s important to keep meticulous records of your expenses all through the year. You don’t want to wait until tax season and then scramble to find expense records. After all, deducting legitimate expenses from your gross earnings will lower your net earnings and ensure your tax bill is lower.

What happens if you overpay or under-pay?

The IRS Form 1040-ES is a tool to help you ballpark your earnings and your estimated taxes based on those projections. If you underpay a quarterly estimated tax, you will pay the remaining amount when you file your annual tax return. If you overpay, you receive the excess amount back in the form of a tax refund.

How do you check if previous taxes were calculated correctly?

Once you know your net earnings, it’s simple to check on tax amounts by using the calculations above.

If you’ve made quarterly payments based on a different amount, then the numbers may be off. But if you’ve determined the correct net earnings and you use the correct calculations, then your tax amounts should be calculated correctly.

What are common mistakes made when calculating self-employment taxes?

Whether you’re just starting your business or you’ve been in business for a few years, it’s easy to make mistakes when it comes to calculating and paying self-employment and other taxes. 

Here are the 4 most common mistakes made by freelancers when calculating taxes:

1. Not knowing what expenses can be deducted from your gross earnings: before you start, find out all the relevant expenses that can be used to lessen the amount of your taxable income.

2. Not keeping good records of those expenses: it’s imperative to keep records of everything, to ensure you get it right and can answer any questions if the IRS comes calling. Using a tool like Bonsai can help track, record and categorize your expenses.

3. Not setting aside some money to pay taxes: you should be saving some of your earnings to ensure you aren’t in a bind when it comes time to make payments.

4. Not tracking all earnings: whether you receive a statement from your client, like a 1099 tax form, or you’re paid via PayPal or other online method, you need to track all earnings. 

What’s a 1099 tax form?

If you’ve earned over $600 from any one client or company in a given year, they are required by the IRS to send you a 1099-misc. When you signed the initial contract with a client, they likely gave you a W9 to fill out, granting them permission to use your social security or EIN number for tax purposes. This information is used to generate that 1099 at the end of the year, and you’ll need to verify the info to ensure it is correct.

While you won’t mail in your copy of the 1099 to the IRS, you will report that number as part of your total earnings on your taxes, so be sure that you don’t miss any amounts! The client will send a copy of the 1099 to the IRS, so you need to make sure your numbers add up.  1099 income needs to be included in your total earnings, along with cash, checks, bartering or other valuable compensation.

What if your client pays you with a credit card or through PayPal? These tools are considered a third-party payment processor, so the company paying you would not need to issue a 1099-misc in these situations. Instead, the payment processor or credit card company would send you a 1099-K. It looks the same as a 1099-misc, but is only issued if you meet certain thresholds.

Currently, your transactions need to total $600 or more for a credit card processor to issue a 1099-K. A third-party processor such as PayPal or Amazon requires you to make over $20,000 in payments from the one processor and have over 200 transactions. If you don’t hit the threshold for these, you’ll still need to report that income, you just won’t get a 1099-K to document it.

Do my expenses have an impact on my taxable revenue?

They sure do! Expenses – legitimate ones – can be the best way to decrease your profits and subject less money to taxes. If you can count up all of your reasonable business expenses, they will be deducted form your total sales or earnings and that final remaining amount (also called “net profit”) is what the IRS will use to determine your taxes.

Remember that your deductions need to be reasonable and related to your business, but the possibilities are huge. Common things that freelancers deduct include:

- Software
- Equipment
- Subscription services
- Office space
- Cell phone
- Travel costs
- Business card
- Web hosting
- Individual health insurance plans

If you use it solely for your business, and not for personal use, it’s a good bet you can use it to lower your total income earned and pay fewer taxes. In the event that you don’t earn anything after expenses, you won’t owe either income or self-employment tax. Just be sure that you’re aware that consistently earning large amounts of money that has been reported on a 1099, but showing no profit, can cause a red flag for the IRS. You want to be honest in your reporting to avoid costly fines or penalties down the road.

What if I don’t live in the USA?

The self-employment tax is specific to US freelancers. If you’re not a US citizen or live outside the US, you should check with a local accountant.

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