Keeping Track of Your Self-Employment Taxes
Self-employment tax is a tax consisting of Social Security and Medicare taxes primarily for individuals who work for themselves. It is similar to
the Social Security and Medicare taxes withheld from the pay of most wage earners. This is not to be confused with the payroll taxes (Social
Security and Medicare) that you withhold from your employees' pay.
The Self-employment tax is a tax on self-employment income, what you make after all expenses are deducted from your revenue, including after
deducting employee wages.
The self-employment tax rate is 15.3%. The rate consists of two parts: 12.4% for social security (old-age, survivors, and disability insurance) and
2.9% for Medicare (hospital insurance).
You are allowed to deduct the employer's tax portion, 6.2% for Social Security and 1.45% for Medicare, as an adjustment to Gross Income in
figuring your Federal Income Tax. But, this deduction doesn't affect your self-employment tax liability. It only affects your Federal Income Tax
The maximum earnings subject to the Social Security tax for 2019 is $132,900. This ceiling includes earnings from any combination of wages,
tip, and self-employment earnings. Any combination of wages, tips, and self-employment earnings earned over this amount are subject only to
the Medicare tax, which is 1.45% for employees and 2.9% for self-employed people.
However, depending upon your filing Status you may be subject to an additional Medicare Tax of .9% on wages, tips, and self-employment
earnings if those earnings exceed a certain threshold.
For example, Joe Smith earned $150,000 in wages in 2019 and $50,000 from self-employment. Joe is single. The first $132,900 of his wages are
subject to the 6.2% Social Security tax and the 1.45% Medicare tax. The remaining $17,100 of his wages are only subject to the Medicare Tax of
1.45%. All of his $50,000 in earnings from self-employment are subject only to the self-employed Medicare Tax of 2.9%. The Additional Medicare
Tax threshold for single filers is $200,000, so if Joe had earned more than $200,000 in wages and self-employment earnings, the amount
exceeding $200,000 would be subject to the .9% Additional Medicare Tax.
Let's say Joe earned $150,000 in wages and $75,000 in self-employment earnings. The first $132,900 of his wages would be subject to the 6.2%
Social Security tax and the 1.45% Medicare tax. The remaining $17,100 of his wages are subject only to the Medicare Tax of 1.45%. $50,000 of
his earnings from self-employment would be subject to the Self-Employed Medicare Tax of 2.9%. The remaining $25,000 in earnings from self-
employment would be subject to the Self-Employed Medicare Tax of 2.9% plus the Additional Medicare Tax of .9%.
Jolene Smith files Single and earned $150,000 in self-employment earnings in 2019 and this was her sole source of earned income. Jolene has
to pay 12.4% Social Security Tax on the first $132,900 of her earnings, and 2.9% Medicare Tax on the full $150,000 of earnings.
The earned income thresholds for being subject to the Additional Medicare Tax are:
Married filing jointly
Married filing separate
Head of Household
Note: A self-employment loss is not considered in calculating what amount is subject to the Additional Medicare Tax.
Noncash Wages: Compensation not paid in cash that are subject to Medicare Tax, such as fringe benefits, are added to cash wages paid, tips,
and self-employment earnings to determine what amount, if any, is subject to the Additional Medicare Tax.
You may need to file Estimated Tax Payments (1040-ES) through out the year, depending on your particular situation.
JournalWorx, LLC, can help you keep track of all of this so that you pay in on a timely basis what should be paid in so that you don't incur IRS
penalties. We’re here to serve you and help keep you out of trouble with the IRS.
Note: The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by JournalWorx to
the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances.