Self-Employment Tax

Tax Basics: Self-Employment Tax

If you make $400 or more working for yourself, you’re subject to the self-employment tax. You work for yourself if you’re a sole-proprietor, owner in a partnership, or independent contractor.

What is the self-employment tax?

The self-employment tax is social security and Medicare taxes for people who work primarily for themselves. As an employee, your employer is responsible for a portion of social security and Medicare taxes. When you work for yourself, however, you’re responsible for both the employee and employer portions of those taxes.

You’ll pay 15.3% in self-employment taxes – 2.9% for Medicare and 12.4% in social security. You’ll only pay social security tax on the first $127,200 you make.

Because you’re responsible for both portions of social security and Medicare taxes, the IRS allows you to deduct half of your self-employment tax on Form 1040, U.S. Individual Income Tax Return.

How do I report my self-employment tax?

To determine how much self-employment tax you owe, file form Schedule SE (Form 1040).

The Social Security Administration (SSA) uses your Schedule SE to determine your benefits under the social security program.

How do I pay my self-employment tax?

You must pay quarterly estimated taxes if

  • you expect to owe $1,000 or more in federal taxes, and
  • your withholding will be less than the smaller of
    • 90% of the tax shown on your current year’s tax return or
    • 100% of your previous year’s tax return.

You’re responsible for paying income and self-employment taxes, so you can calculate and pay your estimated taxes using Form 1040-ES, Estimated Tax for Individuals.

You can pay your quarterly estimated tax by mailing a check or money order with a payment voucher (found on Form 1040-ES) or by paying online.

Estimated Tax Due Dates

For the period: Due Date:
January 1 – March 31 April 18, 2017
April 1 – May 31 June 15, 2017
June 1 – August 31 September 15, 2017
September 1 – December 31 January 16, 2018*

Pay your remaining balance with your return by January 31, so you don’t have to make the January 16 payment.