1. What Is Self-Employment Tax?
Self-employment tax consists of Social Security and Medicare taxes for self-employed individuals. Employees split these taxes with their employers, but self-employed individuals pay both portions. The total rate is 15.3%: 12.4% for Social Security on wages up to the annual wage base, plus 2.9% for Medicare on all net earnings.
2. Who Must Pay?
If your net earnings from self-employment were $400 or more, you must file Schedule SE and pay self-employment tax. This applies even if you do not owe income tax. Church employee income of $108.28 or more also triggers SE tax obligations.
3. Calculating the Tax
Schedule SE calculates your self-employment tax. For most taxpayers, the calculation uses 92.35% of net earnings from Schedule C. This accounts for the employer portion of FICA taxes being deductible. Multiply this figure by 15.3% to arrive at your SE tax liability.
4. The Deduction for Half of SE Tax
You can deduct the employer-equivalent portion of your self-employment tax on Form 1040 Schedule 1, Line 15. This deduction reduces your adjusted gross income but does not affect self-employment tax calculations. For 2024, this equals half of your Schedule SE, Line 5.
5. Estimated Tax Requirements
Self-employment tax creates an estimated tax obligation. Pay estimated taxes quarterly using Form 1040-ES to avoid underpayment penalties. A safe harbor rule applies: if you pay 100% of the previous year's tax (110% if AGI exceeds $150,000), you avoid penalties.