Self Employment Tax 2020 - How much tax do you pay when self employed?

Simon Stuart | August 04, 2020

What is self-employment tax?

Self-employment tax is actually made up of two different types of taxes-

1. Social security.

2. Medicare taxes.

As an employee of a company, your employer and yourself will pay full social security and Medicare taxes, also known as FICA tax.

But as a freelancer, since you're considered both the boss and the employee, you'll pay both portions of that tax.

It's also important to remember that with self-employment taxes, it's a separate tax from your income tax, so you'll pay both self-employment tax and income tax on all your freelance profits.

Who pays self-employment tax?

If you're a freelancer and you earn more than $400 from your freelance business, then you will be subject to self-employment taxes, so more than $400.

How do you calculate the self-employment tax?

The self-employment tax is calculated on the Schedule SE of your Form 1040.

For 2020, the self-employment tax rate is 15.3% on the first $137,700 worth of net income, plus 2.9% on net income over $137,700.

Remember, the self-employment tax is comprised of two different taxes.

1. social security, which is 6.2%

2. Medicare taxes, which is 1.45%.

When you add the two, it equals 15.3% self-employment tax rate.

When should you pay self-employment taxes?

That depends. It's either annually or quarterly.

Quarterly is if you're estimated to more than $1,000 from your business.

The two most important things to remember

1. that self-employment tax is separate from income tax, so you're going to owe self-employment tax on top of any income taxes that you owe.

2. please remember to save for taxes.

Remember to save a portion of every payment you receive from a client for taxes.

Get contact us for Self Employment Tax 2020.