How do I calculate my self-employment tax?
Once you have calculated your self-employment income using Schedule C, you can use the worksheets with Schedule SE to calculate your self-employment tax. The Schedule will walk you through which worksheet you should use, and then you can just follow the worksheet’s steps to calculate your self-employment tax. For the 2006 tax year, these are the basic steps Schedule SE will take you through to calculate your self-employment tax:
1. You will multiply your self-employment net earning by 0.9235, and that resulting number is the amount of your self-employment earnings that are subject to the self-employment tax (this is because only 92.35% of your net earnings are subject to this tax).
2. You then have to separate that amount at the $94,200 mark, because the first $94,200 is taxed differently than any earnings over $94,200.
3. For $94,200 or less of your net earnings (or more specifically, 92.35% of your net earnings), you multiply the earnings by 15.3% to determine your tax on this portion of your earnings. This 15.3% is a combination of 12.4% for Social Security tax and 2.9% for Medicare tax.
4. If your net earnings are $94,2000 or less, you’re done.
5. If your net earnings are over $94,200, the amount above $94,200 gets multiplied by 2.9% to calculate the rest of your self-employment tax. The reason for this distinction is because only the first $94,200 of your net earnings is subject to the Social Security tax, while all of your net earnings are subject to the Medicare tax.
While this may seem somewhat complicated, using Schedule SE is actually fairly straightforward and easy to calculate.