what is self employment tax

What Is Self Employment Tax? (It’s Different than Income Tax!)

What Is the Self-Employment Tax? If you work on your own, you’re probably categorized as, “self-employed.” This applies to a myriad of people including contractors, entrepreneurs, consultants, Uber drivers, real estate agents, and small business owners.

Here’s a 1-minute video from TurboTax that explains self-employment tax well:

What Is Self Employment Tax?

Ok, got it? If not, here’s a recap:

If you are self-employed, taxes are not deducted from your paycheck. Instead, you make estimated payments quarterly during the year for your income taxes and self-employment taxes. If you didn’t make estimated tax payments, (yikes!) you’ll pay these taxes all at once when you file your return.

TIP: Income tax and Self-Employment Tax are Different

I always thought that tomatoes were vegetables and that income tax was the same as self-employment tax. Turns out I was wrong on both accounts. (Who knew that tomatoes are a fruit?!) 

Anyway, even though they’re both reported on the same return, income tax and self-employment tax are two different taxes.

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Self employment tax is a Social Security and Medicare tax you pay as a self-employed person. If you have at least $400 in net income after you enter all of your expenses, you’ll need a schedule SE to calculate your self-employment tax.

social security medicare taxes

This will equal a total of 15.3% of your self-employed income. That’s 12.4% for Social Security, plus 2.9% for Medicare. (If you use the TurboTax Self Employed edition, they will create this form for you!) 

These amounts include both the employer and employee portions because you’re working for yourself. Luckily, you can claim a Federal deduction for half the self-employment tax you pay, which can help lower your taxes.

Once again, if you use their Self-Employed edition, TurboTax will complete this deduction automatically for you as you complete your return.

*Related: Tips for saving money filing taxes this year!

To learn more about TurboTax Self Employed Edition for small business owners, contractors, freelancers, and those with multiple streams of income, click here.

You can also get our exclusive discount for up to an extra 20% off if you decide to use their software.

Thanks for reading our post about self-employment tax, please leave a comment with any questions.

More: 5 Things to Know when filing self-employment taxes – indianweb.com