Self-Employment Tax: Understand & Calculate It for 2021-2022

Self-employment tax is a mix of Social Security and Medicare taxes. Here's how to calculate it and how to save.
Jan 18, 2022
Self-Employment Tax Basics and How to Calculate It in 2019

Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. Here is a list of our partners and here's how we make money.

You may need to pay self-employment tax if you’re a freelancer, independent contractor or small-business owner. Here’s what self-employment tax is, how it works and how you can save.

What is self-employment tax?

The self-employment tax rate is 15.3%. That rate is the sum of a 12.4% for Social Security and 2.9% for Medicare. Self-employment tax applies to net earnings — what many call profit. You may need to pay self-employment taxes throughout the year.

One big difference between self-employment tax and the payroll taxes people with regular jobs pay is that typically employees and their employers split the bill on Social Security and Medicare (i.e., you pay 7.65% and your employer pays 7.65%); self-employed people pay both halves.

The self-employment tax rate for 2021-2022

As noted, the self-employment tax rate is 15.3% of net earnings. That rate is the sum of a 12.4% Social Security tax and a 2.9% Medicare tax on net earnings. Self-employment tax is not the same as income tax.

  • For the 2021 tax year, the first $142,800 of earnings is subject to the Social Security portion. In 2022, it rises to $147,000.

  • A 0.9% additional Medicare tax may also apply if your net earnings from self-employment exceed $200,000 if you’re a single filer or $250,000 if you’re filing jointly.

How to calculate self-employment tax

Calculating your tax starts by calculating your net earnings from self-employment for the year.

  • For tax purposes, net earnings usually are your gross income from self-employment minus your business expenses.

  • Generally, 92.35% of your net earnings from self-employment is subject to self-employment tax.

  • Once you’ve determined how much of your net earnings from self-employment are subject to tax, apply the 15.3% tax rate.

  • Remember, though — for 2021, only the first $142,800 ($147,000 in 2022) of earnings is subject to the Social Security portion of self-employment tax.

  • If you had a loss or just a little bit of income from self-employment, be sure to check out the two optional methods in IRS Schedule SE to calculate your net earnings.

  • Federal: $24.95 to $64.95. Free version available for simple returns only.

  • State: $29.95 to $44.95.

  • All filers get free live tax advice from a tax pro.

Promotion: NerdWallet users get 25% off federal and state filing costs.

  • Federal: $39 to $89. Free version available for simple returns only.

  • State: $39 per state.

  • TurboTax Live packages offer review with a tax expert.

  • Federal: $29.99 to $84.99. Free version available for simple returns only.

  • State: $36.99 per state.

  • Online Assist add-on gets you on-demand tax help.

Who has to pay self-employment tax?

In general, you have to pay self-employment tax if either of these things are true during the year:

  • You had $400 or more in net earnings from self-employment (excluding anything you made as a church employee). You may be self-employed in the eyes of the IRS if you received a 1099 form from an entity you did work for.

  • You had $108.28 or more in income from church employment.

The tax rules apply no matter how old you are and even if you’re receiving Social Security or are on Medicare.

How to pay self-employment tax

  1. You’ll owe at least $1,000 in federal income taxes this year, even after accounting for your withholding and refundable credits (such as the earned income tax credit), and

  2. Your withholding and refundable credits will cover less than 90% of your tax liability for this year or 100% of your liability last year, whichever is smaller. (The threshold is 110% if your adjusted gross income last year was more than $150,000 for married couples filing jointly or $75,000 for singles.)

Tax deductions for self-employment

You can deduct half of your self-employment tax on your income taxes. So, for example, if your Schedule SE says you owe $2,000 in self-employment tax for the year, you'll need to pay that money when it's due during the year, but at tax time $1,000 would be deductible on your 1040.

Self-employment can score you a bunch of sweet tax deductions, too. One is the qualified business income deduction, which lets you take an income tax deduction for as much as 20% of your self-employment net income. (Learn more about that here.) Plus, there are other deductions available for your home office, health insurance and more. Here’s a primer.

» MORE: Compare online loan options for funding and eventually growing your small business.

Get more smart money moves – straight to your inbox
Sign up and we’ll send you Nerdy articles about the money topics that matter most to you along with other ways to help you get more from your money.