A self employed individual who makes a profit (income minus expenses) of $400 or more will have to pay California self employment tax. This amount of 15.3% covers a Social Security payment of 12.4% and a Medicare payment of 2.9%. Since you don’t have an employer to withhold the tax and make payments for you, it’s up to you as the business owner to look after the California self employment tax.
Check out our full guide to California independent contractor taxes.
The California self employment tax is divided into two different calculations. The first is the 12.4% Social Security amount that is paid on a set amount, which in 2020 will be the first $137,700 of your net earnings. The second payment to Medicare is 2.9%, applied against all your combined net earnings. There are some variations if your spouse works for you, you have a family business, or you have a married couples business.
If you expect to owe more than $500, you'll have to make California estimated tax payments on:
If you don’t make the payments on that schedule, you could be subject to a penalty.
To pay California self employment tax, you use Form 1040-ES, Estimated Tax for Individuals. To complete the form, you will need your prior year’s tax return, or if you just started your business, you will estimate your annual earnings.