Are you self-employed? Did you make more than $400 last year?
Congratulations, you must pay a self-employment tax! Just like average wage earners, self-employed citizens must pay Social Security and Medicare taxes. However, the rate and qualifications are different.
The rundown of SE taxes
Unlike those whose taxes are figured by their employers, self-employed workers must determine the tax. To do so, use Schedule SE or Form 1040. The first $118,500 of your wages are taxed at a 15.3%. For 2016, that number will likely increase to $123,600.
This rate consists of 12.4% for Social Security and 2.9% for Medicare. The number is much higher than an employee working in a company, because self-employed individuals must pay all Social Security and Medicare taxes themselves.
When it comes to this tax – like everything in the payroll world – rates and rules depend. An extra 0.9% is taxed to earners whose status is filed as single and make above $200,000. For a married-joint-filing couple, this additional Medicare tax is added on when their income reaches above $250,000. Essentially, the more profitable you are as a self-employed person, the more taxes you’ll pay.
For more information, visit the IRS’s page on self-employment taxes here.