Self-Employment Tax Calculator (2023)

Last udpated December 19th, 2023
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It helps tens of thousands of people across the country save an average of $5,600 on their taxes.
This is an estimate, and should not be considered tax or financial advice.

What You Need to Know About Self-Employment Tax in 2023

Should I pay self-employment taxes as a freelancer?

Generally, if you don’t think you will have a high taxable income and you’ll owe more than $1,000 in taxes – after subtracting federal income taxes – you probably won’t need to pay quarterly taxes. Remember that you can use Bonsai to calculate your self-employment tax deductions.

The IRS requires that all freelance income above $400 a year be reported, and that profit from self-employment income made as a freelance (or independent contractor) be subject to the appropriate tax rate. In other words, self-employment tax applies to freelancers who make over $400 in self-employment income (excluding church employee income).

What you pay income taxes on, however, will depend on the formula of business earnings minus business expenses (which gets you to your magical “profit” number.) You only have to pay Medicare and Social Security taxes on your adjusted gross income. 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.

What Does It Mean to Have a 1099 Income?

When you have 1099 income, this typically means that you’re self-employed and your earnings come from clients, rather than from work as the employee of a business. Examples include freelancers, independent contractors, and anybody who operates a side hustle alongside their main employment. In short, you have a 1099 income if you receive any non-employment income from a business.

For example, you may be a software developer who creates mobile apps for other companies. A client will contract you to complete an app for them, with both parties agreeing on the terms of the contract together. You develop and deliver the app, with the client then paying you and delivering a 1099 Form to denote the payment.

Once you’ve received that form, you can check the payment declared against the payment received. Assuming the numbers match, you’ll then add the income to a Schedule C form, which allows you to combine the income you’ve received from various sources to complete your personal tax returns.

There are four types of 1099 forms that you may receive.

Form 1099-NEC

If the payment you receive from a client for a job comes to $600 or more, you should receive a 1099-NEC form. That form should arrive at your business address by January 31 of the year following the one in which you completed the work.

Form 1099-MISC

Before the reintroduction of the 1099-NEC form in 2020, all income from self-employed work was noted on a Form 1099-MISC. Now, you will only receive this form from a client for nonemployee compensation when the value of the work totaled less than $600.

Beyond nonemployee compensation, you may also need this form for miscellaneous income of at least $600 from the following sources:

  • Rent
  • Health or medical care payments
  • Payments made to an attorney
  • Money earned from a fishing boat
  • Any cash payments made for the purchase of aquatic life or fish for retail
  • Any money received from a “notional principal contract”
  • Proceeds from crop insurance
  • Any prizes or awards you receive, such as monetary prizes from a game show

You may also need to complete a 1099-MISC form if you’ve sold consumer products to earn at least $5,000 from anywhere other than a permanent retail store. Selling online is a good example.

Form 1099-DIV

You should only receive Form 1099-DIV if you own a mutual fund or stock that pays out dividends during the year. Those dividends count as income, meaning they must be declared along with all of your other earnings.

Form 1099-INT

Similar to Form 1099-DIV, you’ll receive Form 1099-INT if you have any sort of bank account that generates savings on the money stored within it. This typically covers all types of savings accounts, as well as checking accounts that have a savings component.

How 1099 Income Differs From W-2 Income

The difference between these two types of income relates to how the Internal Revenue Service (IRS) treats the tax situation surrounding it. For a W-2 employee, many federal and state taxes are deducted before they’re paid, meaning they only have to worry about sharing accurate numbers on their personal tax returns.

The 1099 income differs because the IRS treats all income received via this format as self-employed income. In other words – you have to declare it on your tax returns and can make deductions based on your expenses. Your 1099 is used for determining tax liability related to any contracting work you’ve completed, and it assists in preparing for tax filing by giving you – and the IRS – a record of all income generated through nonemployment arrangements.

Once you receive your 1099s, you can get a clearer idea of how much to set aside for 1099 income. You can also make relevant deductions from this income, which need to be either “ordinary” or “necessary,” according to the IRS. An ordinary expense is any that somebody who works in your field would be expected to face, such as depreciation of computer equipment if you’re a software programmer. “Necessary” covers any expense that isn’t the norm for your field, but needs to be incurred so you can complete the task your client requires. Sticking with the developer example, a piece of software you have to buy to complete a job could be considered a necessary expense because you need it for the work.

Regulations to Expect in the 2023-2024 Tax Season

Whether you’re filing independent contractor income tax or simply handling your personal taxes, you need to know what to expect from the 2023-2024 tax season. There are a handful of regulations to keep in mind.

Deadlines and Extensions

The deadline for your tax filing is April 15, 2024, though you may be able to request an extension through the IRS. Assuming it’s granted, that extension would entitle you to submit your taxes on October 15, 2024, instead. If you do require an extension, you must complete Form 4868. This may be relevant for 1099 contractors, for instance, if a client has failed to provide an accurate 1099-NEC form.

To get an extension, you must provide your best possible estimate for your tax liability and submit Form 4868 before the April 15, 2024 deadline for regular income tax returns. Both forms can be filed via the IRS e-filing service, which is accessible online, and is user-friendly enough to walk you through the entire process.

Standard Deduction Increase

The standard deduction you can claim for the 2023-2024 tax season has increased for both solo filers and married couples who file together. The new limit is $13,850 for a solo filer, increasing to $27,700 for join filings.

Seven Federal Income Tax Rates

The IRS has implemented seven income tax rates for the 2023-2024 period and says that these rates will remain the same until 2025. However, the income thresholds for each rate change annually, typically climbing up to account for national inflation. The United States experienced record-high inflation in 2022 and 2023, meaning that the income thresholds for the seven rates have increased by about 7% compared to the 2022-2023 tax year.

The 2023-2024 rates are as follows:

10% Rate

  • Solo – $0 to $11,000
  • Married and filing separately – $0 to $11,000
  • Married and filing together – $0 to $22,000
  • Head of household – $0 to $15,700

12% Rate

  • Solo – $11,001 to $44,725
  • Married and filing separately – $11,001 to $44,725
  • Married and filing together – $22,001 to $89,450
  • Head of household – $15,701 to $59,850

22% Rate

  • Solo – $44,726 to $95,375
  • Married and filing separately – $44,726 to $95,375
  • Married and filing together – $89,451 to $190,750
  • Head of household – $59,851 to $95,350

24% Rate

  • Solo – $95,376 to $182,100
  • Married and filing separately – $95,376 to $182,100
  • Married and filing together – $190,751 to $364,200
  • Head of household – $95,351 to $182,100

32% Rate

  • Solo – $182,101 to $231,250
  • Married and filing separately – $182,101 to $231,250
  • Married and filing together – $364,201 to $462,500
  • Head of household – $182,101 to $231,250

35% Rate

  • Solo – $231,251 to $578,125
  • Married and filing separately – $231,251 to $346,875
  • Married and filing together – $462,501 to $693,750
  • Head of household – $231,251 to $578,100

37% Rate

  • Solo - $578,126 or above
  • Married and filing separately – $346,876 or above
  • Married and filing together – $693,751 or above
  • Head of household – $578,101 or above

How the Tax Thresholds Work

It’s also worth noting how the income tax thresholds work.

Let’s assume you’re living alone and you earn $50,000 per year. That places you in the 22% income tax rate. However, you won’t pay that rate on most of your income. Instead, you’ll pay a rate that’s staggered based on the above income thresholds. In this example, you’ll pay 10% on the first $11,000 you earn, followed by 12% on any income between $11,001 and $44,725. The 22% rate only comes into play for the rest of your income – the last $5,275 in this example – so you don’t have to worry about paying 22% on the whole $50,000.

Finally, it’s important to understand that income tax is separate from self-employment tax. You pay the latter tax in addition to your income tax, with the specific percentages detailed below.

What’s the self-employment tax liability for?

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?

Self-employment income is the total income subject to self-employment taxes. This is calculated by taking your total 'net farm income or loss' and 'net business income or loss'. The tax rate is calculated on 92.35% of your total self-employment 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%. This is done to adjust your net income downward by the total employment tax that would have been employer paid income, had you not been self-employed. If the result is less than $400.00, you do not owe any self-employment tax on this income.

If your net church employee income or total church income subject to self-employed tax is under $100, you will not owe any self-employment taxes.

The self-employment tax rate is currently 15.3% of your income. Self-employment tax consists of 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 $142,800 or less), whereas the Medicare portion does not. So, if your total employment wages exceed $142,800, you will not owe any additional FICA taxes. You must pay this tax if you’ve made money from your freelance business of $400 or more.

You will probably not receive a tax refund.

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 2023-2024 is the first $160,200 of earnings.

Amount subject to self-employment tax (to a maximum of $160,200) 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

How You Can Benefit from Using Tax Software

The most obvious benefit of tax software is that it generates quick results. The reason being, it helps freelancers and contractors to properly record their income – and deductions – using a question-and-answer format combined with simple navigation tools.

In many cases, these pieces of software allow you to import any forms you receive directly into them. So, self-employed workers who receive multiple 1099 forms can scan them into the software and have it add their income to a running total, from which they can then claim deductions and work out how much money to set aside for 1099 tax. The software generally provides accurate estimates and simplifies tax calculations based on the information you input.

Better yet, this type of software can help you spot deductions and tax breaks you may not have factored into your tax returns alone. It automatically takes into account various deductions – and may ask you about deductions you might have but haven’t declared – helping you to save money. The result is a more accurate tax filing that you can send to the IRS, often through the software itself.

Then, there are the regulation changes. Trying to stay on track with the various changes to income brackets – and other rules – the IRS creates each year is tough. Good software should be updated regularly, taking those changes into account automatically so you don’t have to waste time trying to keep track of them all yourself.

What Are Medicare Taxes?

Freelancers pay self-employment tax and a portion of it 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.If you are a high earner, an additional Medicare tax of 0.9% may also be tacked on to your tax bill.

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 self-employed freelancer, the closer you’ll be to max out Social Security retirement benefits later in life!

Paying taxes on top of your self-employed income?

As long as your earnings is more than $400 in a given tax year, you'll always owe self-employment tax, consists of Social Security and Medicare, on your earnings. 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 independent contractor 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.

How do individuals pay self-employment tax?

The IRS provides tools for you to use to file and pay self-employment 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.

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.

When Should You Itemize Deductions vs. Taking the Standard Deduction?

The most obvious answer is that you should itemize if you believe your deductions will be higher than the standard deduction the IRS allows you to claim. For single taxpayers, the standard is $13,850, going up to $20,800 for heads of households. Married couples that file jointly have a standard deduction of $27,700.

To determine if your itemized deductions would be higher than those figures, you need to keep track of every business-related expense you incurred during the tax year, starting with the 21 best deductions Bonsai lists for 1099 contractors. Other potential deductions include any contributions you made to charity and out-of-pocket medical expenses you incurred during the year.

However, it’s not enough to simply claim those deductions. You also need to prove that you incurred them, meaning you must retain any supporting documentation – such as receipts or invoices – related to each claim.

As a rule of thumb, those with a mortgage will likely benefit from itemizing. In January 2024, your mortgage provider should send Form 1098, which is your mortgage interest statement for the 2023 calendar year. Add the interest listed between April 2023 and December 2023 to any points or mortgage insurance premiums together. If the resulting number is close to – or larger – than the standard deduction, itemizing is a good idea.

The downside is that itemizing deductions is more expensive than simply claiming the standardized deduction. That’s likely why about 90% of people stick with the standard. But as a self-employed person with a mortgage, you may be spending more on your taxes than you need to if you don’t itemize.

How State and Local Taxes May Play a Role in Your Decision

Let’s assume you’ve added your mortgage-related deductions to your expenses and you’ve come up with a number that’s less than the standard deduction. That means you should go with the standard deduction, right?

Not necessarily.

Any state or local taxes you pay may hold the key to tipping your itemized figure over the standard one. Look to the following and add them to the deductions you already have:

  • State and Local Income Tax – You may deduct any of these taxes that were withheld from your wages as a W-2 employee for the year, which is useful for 1099 contractors who have a regular job on top of their side hustle. If that doesn’t apply to your situation, you also have the option of deducting state and local sales taxes, assuming they apply. Do this if the sales tax you paid is higher than your income tax, as you can only deduct one or the other.
  • Real Estate Tax – Anyone who pays real estate taxes via an escrow account can use either the year-end summary they receive from their lender or Form 1098 to deduct those taxes from their federal income tax return. If you don’t pay these taxes via escrow, you can still claim them by adding up your real estate tax payments for the year.
  • Car Registration – You may be able to claim for a portion of your vehicle registration, assuming the tax you’re paying is based on the car’s value. Look to your renewal or registration notice, which should tell you how much you pay.

There are a couple of caveats to consider here. First, every state has different laws in place for state and sales tax, with some not even charging either. Perhaps more importantly, the IRS sets a hard $10,000 limit on these state and local deductions. If your calculations of other deductions put you at more than $10,000 from the standard deduction, it’s not worth looking into this aspect – you’ll save more by going down the standard route.

How Do Deductions and Credits Work?

Both tax credits and tax deductions ultimately help you to spend less on your taxes. However, the mechanisms they use to achieve those lower payments differ.

With a deduction, you reduce the amount of income that is subject to tax before paying the tax on that reduced income. For example, if we revisit the person who earned $50,000 for the year from early in the article, they may be able to claim deductions of $15,000. Those deductions are applied before they pay federal income tax, meaning they’re actually only taxed on income of $35,000. In this example, the individual then falls out of the 22% tax bracket, meaning they’ll pay a maximum of 12% tax on their income.

With credits, your taxable income remains the same, with the credit being applied directly to your tax bill. If you have a $1,000 credit, you’ll still work out your tax obligation as you always would. The credit only comes into play once you have your tax bill, after which it’s applied to whatever figure that is to decrease the bill by $1,000.

However, there’s a catch with tax credits – most aren’t refundable.

Let’s say you work out your tax bill as $500 and you have a $1,000 tax credit. In most cases, claiming the tax credit to reduce that bill to $0 means that you essentially lose $500. The extra isn’t refunded to you by the IRS. Thankfully, there are some refundable credits – including child tax credit and earned income tax credit – that are refunded to you in the form of a check if you use it to reduce your tax bill to $0. The IRS has very specific criteria you must meet to get a refundable tax credit.

As for which to choose, the consensus is that taking a tax credit is a better option than a deduction because the credit applies directly to the amount of tax you owe. But it’s not always that easy. As you enter higher income brackets, your deductions may increase to the point where you can use them to drop down into a lower bracket. You need to crunch the numbers to see if that change in brackets results in a higher saving than a tax credit would provide. The right tax software can help determine how much income tax you should expect to pay as an independent contractor, so you can see if a credit or deduction is right for you. 

Penalties for Late Payments

The IRS uses two types of penalties to punish truant taxpayers – late filing and late payment.

If you’re late in filing your federal income tax return – or fail to file for an extension properly – you have to pay a penalty of 5% of the taxes for each month up to a maximum of 25% of your unpaid taxes. If you fail to file and fail to pay, the penalty for failing to file is reduced by the amount of the penalty for not paying your taxes on time.

There is also a minimum amount you’ll have to pay as a penalty if you miss the filing deadline by over 60 days. It’s currently $485, though the IRS tends to increase this minimum regularly.

Regardless of your filing status, the IRS also institutes penalties on those who don’t pay the taxes they owe on time. This amounts to 0.5% of the unpaid taxes per month, up to a maximum of 25% of the unpaid amount. As mentioned, the IRS will reduce your failure to file percentage accordingly. So, a month where you receive the 0.5% penalty for failing to pay will see you only pay a 4.5% failure to file penalty.

The 0.5% penalty increases to 1% if you don’t make your payment within 10 days of receiving the notice that it’s overdue. It can also decrease to 0.25% if you filed on time and have worked out a payment plan with the IRS.

The IRS charges interest on both types of penalties, which varies depending on the penalty itself. That interest keeps getting added until you file and pay in full, including any interest added in the time it took to handle the payment.

What if I don’t live in the USA?

You'll owe self-employment taxes or Social Security and Medicare taxes if you are a US freelancer. It If you’re not a US citizen or live outside the US, you should check with a local accountant.

What if you received a 1099 form?

You're probably going to need a 1099 tax calculator, you can easily use Bonsai Tax to help you with that!

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