The Self Employment tax refers to mandatory contributions that all self-employed individuals must make to Social Security and Medicare. It's bascially the same thing as the paycheck withholding you tend to see. However, when you're getting a paycheck, your employer is paying for half of your contributions to Social Security and Medicare. When you work for yourself, you have to pay the full amount.
The total self employment tax rate is 15.3%. Of that, 12.4% is for Social Security and 2.9% is for Medicare contributions.
As you earn money throughout the year, Outright.com will calculate the amount you owe.
Wouldn't that be nice? Sadly, this isn't the case. You also need to pay income taxes on any profit you earn from your business. However, you do get to deduct half of your self employment taxes paid from your adjusted gross income. Not quite a silver lining, but better than nothing we suppose.
If you earn more than $400 in business income, then you need to pay Self Employment tax. And if you expect to owe more than $1,000 in self employment and income taxes, then you need to make quarterly estimated tax payments. For very small amounts, you can settle up at the end of the year.
If you're earning money while working for yourself, and want the easiest way to stay on top of your self employment tax, give Outright a try.