August 5, 2023
What is Self-Employment Tax
So you’ve decided to take on your own business? One of the biggest differences is that instead of taxes being withheld from your income, you will need to pay taxes as you receive income in order to ensure that you remain compliant with the IRS! So, what is self-employment tax?
Peeling Back The Layers
Self-employment taxes are the same in terms of the taxes that you pay towards, but they are different in that you will be required to cover both the employer’s portion of taxes and the employee’s portion of taxes. Below are the amounts that you are required to cover:
• Social Security Portion: 12.4% (up to $160,200 in self-employment earnings is subject to this tax)
• Medicare Portion: 2.9%
• Additional Medicare Tax: 0.9% (for self-employment income over $200,000 or $250,000 for joint)
Perks For Paying Taxes
On the bright side, there is a deduction for self-employment tax which is 1/2 of the self-employment tax calculated (aka, the employers portion).
Self-Employment Taxes For Different Situations
Unsurprisingly, taxes aren’t always a one-size-fits-all and that goes for certain self-employment situations. For example, these taxes may not apply to hobby income. See the article below for more details!fortitude-selfemployment_tax_2023