What is Self-Employment Tax? Why Do I Pay It?

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What is Self-Employment tax and why you pay it? Business owners can’t afford to miss this business podcast from the best business coach, Clay Clark.

Business Coach 266


1. As a Self-Employed person or self-employed person you are responsible for paying your own taxes

2. Most employees and workers, the required federal and state taxes are auto deducted from their paychecks

3. Self-employment tax is comprised of two different taxes

A. Security Security Tax – The Social Security tax is 12.4% of your self-employment earnings up to $118,500

B. The Medicare Tax – 2.9% of your self-employment earnings. Medicare tax is applied to all of your earnings.

Note: For conventional, W-2 employees, employers pay half of the Social Security and Medicare Tax, meaning that the employees would only pay 7.65% (half of 15.3%).

Note: To ease the burden on self-employed individuals the federal government allows you to calculate your net earnings, reducing your taxable income by 7.65%.

Ample Example: You are a self-employed human who earns $50,000 Step 1 – Multiple your earnings by .9235 – You only need to pay taxes on 92.35% of your self-employed revenue. This results in $46,175, which is your net earnings. Step 2 – Multiply $46,174 by 15.3% (46,714 multiplied by 0.153), which comes out to $7,064.62 for the Social Security and Medicare taxes you owe or your self-employment tax. Step 3 – List this entire self-employment tax amount on the 1040 Form under “Other Taxes.” Step 4 – Then, you would divide your self-employment tax in half (7,064.62 divided by 2), which comes out to $3,532.31, and on your 1040 Form report this amount as an adjustment to income. Fun Fact: There is an additional Medicare Tax of 0.9% that only applies if your income exceeds $200,000 for a person who files as single, and more than $250,000 if married and filing jointly. 

Fun Fact: How much tax do you really pay?

#1 Air Transportation Taxes (just look at how much you were charged the last time you flew)
#2 Biodiesel Fuel Taxes
#3 Building Permit Taxes
#4 Business Registration Fees
#5 Capital Gains Taxes
#6 Cigarette Taxes
#7 Court Fines (indirect taxes)
#8 Dog License Taxes
#9 Drivers License Fees (another form of taxation)
#10 Fishing Permits
#11 Employer Medicare Taxes
#12 Employer Social Security Taxes
#13 Estate Taxes
#14 Federal Corporate Taxes
#15 Federal Income Taxes
#16 Federal Unemployment Taxes
#17 Flushing Tax –
#18 Food And Beverage License Fees
#19 Franchise Business Taxes
#20 Gasoline Taxes
#21 Gift Taxes
#22 Gun Ownership Permits
#23 Hazardous Material Disposal Fees
#24 Highway Access Fees
#25 Hotel Taxes (these are becoming quite large in some areas)
#26 Hunting License Taxes
#27 Import Taxes
#28 Inheritance Taxes
#29 Insect Control Hazardous Materials Licenses
#30 Inspection Fees
#31 Interstate User Diesel Fuel Taxes
#32 Inventory Taxes
#33 IRS Interest Charges (tax on top of tax)
#34 Library Taxes
#35 License Plate Fees
#36 Liquor Taxes
#37 Local Corporate Taxes
#38 Local Income Taxes
#39 Local School Taxes
#40 Local Unemployment Taxes
#41 Luxury Taxes
#42 Marriage License Taxes
#43 Medicare Taxes
#44 Medicare Tax Surcharge On High Earning Americans Under Obamacare
#45 Obamacare Individual Mandate Excise Tax (if you don’t buy “qualifying” health insurance under Obamacare you will have to pay an additional tax)
#46 Obamacare Surtax On Investment Income (a new 3.8% surtax on investment income)
#47 Passport Fees
#48 Professional Licenses And Fees (another form of taxation)
#49 Property Taxes
#50 Real Estate Taxes
#51 Registration Fees For New Businesses
#52 Toll Booth Taxes
#53 Sales Taxes
#54 Sewer & Water Taxes
#55 School Taxes
#56 Septic Permit Taxes
#57 Service Charge Taxes
#58 Social Security Taxes
#59 Special Assessments For Road Repairs Or Construction
#60 Sports Stadium Taxes
#61 State Corporate Taxes
#62 State Income Taxes
#63 State Park Entrance Fees
#64 State Unemployment Taxes (SUTA)
#65 Tanning Taxes (a new Obamacare tax on tanning services)
#66 Telephone 911 Service Taxes
#67 Telephone Federal Excise Taxes
#68 Telephone Federal Universal Service Fee Taxes
#69 Telephone Minimum Usage Surcharge Taxes
#70 Telephone State And Local Taxes
#71 Telephone Universal Access Taxes
#72 The Alternative Minimum Tax
#73 Tire Recycling Fees
#74 Tire Taxes
#75 Traffic Fines (indirect taxation)
#76 Utility Taxes
#77 Vehicle Registration Taxes
#78 Waste Management Taxes
#79 Water Rights Fees
#80 Watercraft Registration & Licensing Fees
#81 Well Permit Fees
#82 Workers Compensation Taxes
#83 Zoning Permit Fees



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