Methods to Calculate Self-Employment Tax

By | March 2, 2015

There are several steps that can used to calculate self-employment tax. It is important to calculate self-employment tax correctly because taxpayers must pay self-employment tax, in addition to income tax on their federal returns if certain situations are met.


Rules for Calculating Self-Employment Tax

The rules for calculating the amount of self-employment tax due are a bit different than the rules for calculating federal income taxes. it important to realize these differences when completing a self-employment tax return. Tax self-employment is a social security tax and Medicare primarily for people who are self-employed, operate with the intention of making a profit, generating net earnings from self-employment of $ 400 or more.


Step 1: Determine Net Income for Self- Employment

To begin the first step is determining net earnings from self-employment, identifying income, expenses, and deductions that can be used in the calculation of tax self-employment. All allowable deductions, including depreciation, should be claimed. Net income from self-employment usually includes all business income and allowable deductions for purposes of the tax in Puerto Rico.


Deductions and Exemptions Not Included in Self Employment Tax

Some deductions and exemptions are not included when the self employment tax is calculated on their own. Do not include:

  • The deduction for personal exemption of the taxpayer, spouse, or dependent
  • Deductions for loss of business (Casualty Claims)
  • Deductions out of business (eg, itemized deductions)
  • The net operating losses from previous years
  • The deduction for health insurance taxpayer (but the deduction is allowed for employee health insurance business)
  • The deduction for 50% federal tax on self-employment
  • The deduction for contributions to pension plans or deferred income, other contributions for the benefit of the taxpayer

Taxpayers with multiple trades or businesses combined net income of all these to compute net income of self-employment. A loss reduces one of the business income earned in another.

Notice: Giving false or increase for Social Security benefits can lead to penalties taxpayer testimony. While taxpayers paying too much tax are rarely ticketed. The Social Security Administration may deny benefits if a taxpayer can not prove who is involved in a trade or business.


Step 2: Determine the Adjusted Income for Self-Employment

The second step of the regular method to determine the net earnings from self-employment. We use this formula to determine the adjusted profit of a business:

Net gain x .9235 = Profit adjusted


Step 3: Determine Self-Employment Tax

The third step is to determine the current tax. Use these formulas to determine the tax self-employment of a taxpayer:

  • Adjusted profit x .124 = Social Security Tax
  • Adjusted profit x .029 = Medicare Tax
  • Social Security tax Medicare + tax = Tax self-employment


What IRS Forms for Self-Employment Tax?

Use the following forms to file your self-employment tax return.

  • Form 1040-SS (English) or Form 1040 (Spanish) if they have no taxable income US
  • Form 1040-SS and Form 1040 can also be used to claim the additional child tax credit (as)
  • Form 1040, Schedule C and Schedule SE if they have income subject to US tax
  • Taxpayers who complete Schedule C and Form 1040, only to pay the contribution of written self-employment “tax for self-employment only” to indicate that self-employment is not subject to US income tax .S., after it is exempt under IRC 933. Enter 0 on line 12 of Form 1040.


Estimated Tax Forms for Self-Employed

Taxpayers must make estimated tax payments during the year when the annual contribution is $ 1,000 or more.

Usually, taxpayers make four payments of the same amount. If you do not owe taxes the first quarter, or start doing business in the middle of the year, they must make estimated tax payments for the corresponding quarters. Taxpayers who do the required estimated tax payments can be penalized for underpayment of estimated tax. Use Form 2210, underpayment of Estimated Tax by Individuals, Estates, and Trusts (Underpayment of Estimated Tax by Individuals, Secession and Trust), to compute the infringement. The rate is determined each year using the interest rate at certain times of the year.


When are estimated quarterly tax payments due?

Estimated payments are made quarterly on:

  • April 15
  • June 15
  • September 15 and
  • January 15 of the following year

Use the worksheet on Form 1040-ES to compute the estimated tax for self-employment. Taxpayers must register their payments as these payments are reported on Form 1040 year-end. The record must include:

  • Date of payment
  • Amount of payment
  • Credits for the carryover from previous years
  • Net payment for the quarter

Form 1040-ES includes a table to record this information.