Self-Employment Tax Calculator (2022-2023)

Last udpated December 15th, 2022
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Bonsai Tax is built just for self-employed workers.
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 2022-2023

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’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 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 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.

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!

Track 1099 expenses & keep a peace of mind at tax time

Bonsai Tax is built exclusively for self-employed workers to track expenses, maximize tax write-offs, and estimate quarterly taxes.

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