WHAT ARE SELF-EMPLOYMENT TAXES
SE tax is a tax rate of 15.3 percent which is imposed on net earnings from self-employment.
What does earnings from self-employment mean? it means the income you generated from your small business or from a contract job/service from which you were provided a 1099, that income is subject to self-employment taxes.
The rate consists of a 12.4 percent component for Social Security (old-age, survivors, and disability insurance (OASDI)) and a 2.9 percent component for Medicare hospital insurance (HI).
Tax Rate
Potential Increase (Y/N)
Threshold (MFJ)
Additional Tax Rate
Total
Social Security (old-age, survivors, and disability insurance (OASDI)
12.4 %
No
Tax on self-employed income up to 128,400 for 2018
N/A
12.4 %
Medicare Hospital Insurance
2.9 %
Yes, if higher income/earnings from self-employment
250,000 + net earnings from self-employment.
0.9 %
3.8 %
Total
15.3 %
16.2 %
Here is a quick recap:
SS applies to all net earnings from self-employment up to the OASDI wage base $128,400 (2018).
Medicare applies to all net earnings from self-employment. Further, the Medicare rate is increased by 0.9 percent to 3.8 percent for net earnings from self-employment in excess of $200,000 ($250,000 if married filing jointly).
A 50% deduction for Self-employment taxes exists and should be used to reduce your overall tax liability.
Self-employment taxes are not to be confused with Federal Withholding or Federal Income Tax. The Federal Income tax is an additional tax that is paid on your taxable income. The Federal Income Tax is a graduated tax, meaning income is taxed progressively. It has tax brackets such as 10%, 12%, 22% and as high as 37%.
Do you have any questions regarding federal income tax or self-employment tax? If so, click the link here and schedule an appointment to discuss your specific questions.