Self-employment tax is the Social Security and Medicare tax that an employer would have split with you. When you work for yourself, you pay both halves. Income tax is a second bill, calculated after a deduction for half of that payroll tax. Nobody withholds either one during the year unless you do.
The tax base is not the full profit
Self-employment tax is calculated on 92.35 percent of net profit. That factor stands in for the deduction of the employer half. Social Security tax is 12.4 percent of that base, up to the wage base. Medicare tax is 2.9 percent, with an extra 0.9 percent above a high income threshold.
Enter profit after ordinary business expenses and before the self-employment tax deduction. Do not subtract your estimated taxes first, or you will understate the bill. If you also have W-2 wages, enter them. They use up part of the Social Security wage base.
Why you deduct half, and why that does not erase the tax
Half of the self-employment tax is subtracted before income tax is estimated. That keeps the same earnings from being fully taxed twice. The deduction does not reduce the self-employment tax itself. You can owe both, and most people with a real profit do.
A pre-tax retirement plan for the self-employed can lower the income tax. It does not erase the payroll tax. State tax is not in this tool. Add your state’s rate on top of the quarterly number.
Set the money aside when you get paid
Dividing the annual federal estimate by four is a simple way to set cash aside. Actual estimated-tax rules also look at last year’s tax and can include a penalty if you underpay. This page does not file the vouchers. It tells you a federal amount to move.
The habit that works is moving the set-aside to a separate account when the client pays you, not in March. A profitable year feels like spending money until the quarterly date arrives. The calculator is there so that date is not a surprise.
How to use the self-employment tax calculator
Self-employment tax is both the employee and employer share of Social Security and Medicare, because no employer withholds them. You then deduct half of that tax when estimating income tax. The quarterly figure is the combined self-employment tax and federal income tax, divided by four. It is a planning set-aside, not the exact voucher the IRS will compute.
- Enter net profit from the work: revenue minus ordinary business expenses.
- Add W-2 wages if you also have a job. They count toward the Social Security wage base.
- Choose a filing status so the income-tax estimate uses the right standard deduction.
- Read the self-employment tax, the federal income tax, and the quarterly set-aside.
How the math works
The 92.35% base
Self-employment tax is calculated on 92.35% of net profit, which approximates the deduction for the employer half. Social Security tax is 12.4% of that base, up to the wage base. Medicare tax is 2.9%, with an extra 0.9% above a high income threshold.
The half deduction
Half of the self-employment tax is subtracted before income tax is estimated. That keeps the same earnings from being fully taxed twice. The deduction does not reduce the self-employment tax itself.
Quarterly payments
Nobody withholds this tax during the year. Dividing the annual estimate by four is a simple way to set cash aside. Actual estimated-tax rules also look at last year’s tax and can include a penalty if you underpay.
$120,000 of net profit, single filer
The defaults have no W-2 wages and use the single standard deduction.
Self-employment tax is about $16,955. Federal income tax on the remaining taxable income is about $16,376. Setting aside about $8,333 each quarter covers that combined federal bill. Take-home profit after those federal taxes is about $86,700.
Terms worth knowing
- Net profit
- Self-employment revenue minus ordinary and necessary business expenses.
- Self-employment tax
- Social Security and Medicare tax paid by someone who does not have an employer withholding both halves.
- Quarterly estimate
- A payment during the year so the full tax is not due every April.
- Wage base
- The earnings level where Social Security tax stops. W-2 wages use up part of it.
What to do with the number
Move the set-aside to a separate account when you get paid, not in March.
A pre-tax retirement plan for the self-employed can lower the income tax. It does not erase self-employment tax.
If you also have W-2 wages, enter them. Otherwise Social Security tax may be overstated once you pass the wage base.
State tax is not in this tool. Add your state’s rate on top of the quarterly number.
Questions people ask
What this leaves out
Social Security tax uses a 12.4% rate and the 2024 wage base of $168,600.
Medicare tax is 2.9%, plus 0.9% above the additional Medicare threshold.
Income tax uses 2024 federal brackets and the standard deduction. Itemizing is not included.
State tax, credits, and the qualified business income deduction are not included.
These figures are estimates to help you understand the tradeoff. They are not tax, legal, insurance, or investment advice. A fiduciary can look at the same numbers in the context of the rest of your plan.