Topic No 554 Self-Employment Tax Internal Revenue Service

To file your annual return, you will need to report your income from a business you operated or a profession you practiced as a sole proprietor. To report your Social Security and Medicare taxes, you must file Schedule SE , Self-Employment Tax.

Specific tax obligations will depend on whether the business resulted in a net profit or a net loss. Make payments using the IRS Form 1040-ES and FTB Form 540-ES. These forms come with payment vouchers for use by mail. The Electronic Federal Tax Payment self employment tax System can also be used to make the payments. The Franchise Tax Board offers free online filing on Calfile. You need to adhere to the following schedule for making quarterly tax payments. It applies to both the IRS and the Franchise Tax Board.

of your self-employed income.

But the difference between being self-employed and being employed by a company is that employers are required to foot the bill for half (7.65%) of FICA. Next, use IRS Schedule SE to figure the tax due on your net earnings from self-employment.

Our blog breaks down IRS guidance with real-world examples and analysis by tax professionals — empowering taxpayers to save money and take control of their finances. If you own your business, you have access to tax breaks and write-offs. When leveraged correctly, those additional tax benefits can make up for the higher self-employment tax and lead to a lower total effective tax rate. When figuring self-employment tax you owe, you get to reduce self-employment income by half of the self-employment tax before applying the tax rate. Say, for example, that your net self-employment income is $50,000. That’s the amount you report as taxable for income tax purposes on Form 1040.

Tax deduction

You’re required to pay taxes on the income you generate from self employment in California. The self employed taxes California collects funds Social Security and Medicare only.

We’ve rounded the result because the IRS gives you the option of rounding off cents to whole dollars on your tax return and schedules. If the result is less than the Social Security wage base, the calculation is simple. If your net earnings are more than the Social Security wage base, your calculation will have a few additional steps.

File

But that’s not the case – you’d still have to pay a 15.3% self-employment tax. Below, we’ll explore this tax and why you have to pay it. If you need help with this or any other tax issue, consider working with a financial advisor. An additional Medicare tax rate of 0.9 % applies to wages, compensation, and self-employment income above a threshold amount received in taxable years beginning after Dec. 31, 2012. See the Questions and Answers for the Additional Medicare Tax page for more information. Our small business tax professional certification is awarded by Block Advisors, a part of H&R Block, based upon successful completion of proprietary training. Our Block Advisors small business services are available at participating Block Advisors and H&R Block offices nationwide.

Multiplying that by 92.35% gives you $27,705 as your income subject to self employment taxes. Now you multiply this taxable income by the prevailing 15.3% tax rate and you get $4,238.