Question

Elisa Grant earns net self-employment income of $198,000. She works a second job from which she receives FICA taxable earnings of $83,000. So, what will be self-employment tax?

Answer 1

Calculating self-employment tax involves several steps. First, determine your net earnings from self-employment by subtracting allowable business expenses from your total income. Self-employment tax comprises Social Security tax and Medicare tax. The Social Security tax rate is 12.4%, while the Medicare tax rate is 2.9%. However, the Social Security tax applies only to income up to a specified limit. Calculate the Social Security tax by applying the rate to your net earnings within this limit. For Medicare tax, apply the 2.9% rate to all your net earnings. If you're a high-income earner, be aware of an additional 0.9% Medicare tax on earnings above a certain threshold. The total self-employment tax is the sum of the Social Security tax and Medicare tax, including any additional Medicare tax if applicable. Report your self-employment income and calculate the tax on Schedule SE (Form 1040), then include the total on your Form 1040 when filing your annual tax return. Keep in mind that tax laws can change, so it's advisable to seek guidance from a tax professional for personalized advice and compliance with the latest regulations.