If you’re an independent contractor or a self-employed professional, calculating your tax obligation can be a little tricky. Self-employed individuals often have income from multiple sources and the total monthly earnings can vary from one month to another, which is why we recommend using Lunafi and our free tools for help.
You have to pay self-employment tax if you had $400 or more in net earnings from self-employment. Our self-employed income calculator is a simple way to determine your tax obligations. Simply enter the required information, including your business revenue and expenses in our self-employed expense calculator to get an estimate of what taxes you will be due at the end of the financial year.
To calculate your tax manually, you start by figuring your net earnings from self-employment for the year. For tax purposes, net earnings are your gross income from self-employment less your business expenses. Generally, 92.35 percent of your net earnings from self-employment is subject to self-employment tax.Once you’ve determined how much of your net earnings from self-employment are subject to tax, apply the 15.3 percent tax rate. For 2021, remember that only the first $142,800 of earnings is subject to the Social Security portion of self-employment tax.
Don’t forget your deductions: You can deduct half of your self-employment tax from your income taxes. If your Schedule SE says you owe $3,000 in self-employment tax for the year, you'll need to pay that money when it's due during the year, but at tax time $1,500 would be deductible on your 1040. You can take tax deductions, as well, including the qualified business income deduction, which lets you take an income tax deduction for as much as 20 percent of your self-employment net income. Other deductions can include your home office, health insurance, and more.