What is Self-Employment Tax? Why Do I Pay It?
Audio Transcription
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.
SHOW NOTES:
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 |
