Browse our HR content and webinar libraries, read the latest blog articles, or check out our HR Software Calculator.
Get new and unique perspectives on HR tech, best practices, and current events every week.
A new podcast from BambooHR about putting your people first.
Browse our library of ebooks, infographics, how-to guides, and unique research.
Stream HR insights right to your screen. Watch one of our 100+ partner webinars absolutely free.
We wrote the book on everything HR.
From Applicant Tracking System to Work/Life Balance, we can help you become a walking HR encyclopedia.
Want to know how much your organization could save with the right HRIS? Start here.
From hiring and onboarding remotely to supporting employee mental health, find relevant HR resources for helping your business recover from a crisis.
Learn about all of the exciting changes that are happening to our platform.
Learn about the company, find press and media details, or apply to work with us!
Who we are, where we came from, and why we make HR software.
This is where you’ll find the latest news and resources from BambooHR.
Are you awesome? Come work with us!
Join us at all the virtual and non-virtual events we're throwing or attending.
Join one of our partner programs.
Get in touch with BambooHR.
Glossary of Human Resources Management and Employee Benefit Terms
The self-employment tax is a federal tax paid by freelancers, independent contractors, small business owners, and others on their net earnings. It’s used to collect Social Security and Medicare taxes from self-employed individuals. The self-employment tax equals the total amount due for those two taxes.
The self-employment tax is higher than the Social Security and Medicare taxes you pay when you work for someone else because employers are required to pay half their employees’ Social Security and Medicare taxes. As a self-employed person, you have to pay the entire amount yourself.
Federal law sets the self-employment tax rate at 15.3 percent of net earnings. This rate is the combined total of a 12.4 percent Social Security tax and a 2.9 percent Medicare tax. For 2020, the Social Security tax for self-employed individuals is only due on the first 137,700 dollars of net earnings. The Medicare tax must be paid no matter how much you earn, and you must also pay an additional 0.9 percent Medicare tax if your net earnings are more than 200,000 dollars for single filers or 250,000 dollars if you file jointly.
Generally, net earnings from self employment of less than 400 dollars during the year are not subject to the self-employment tax. Also, if you earned money by working for someone as an employee, you don’t have to pay the self-employment tax on those earnings as long as the employer withheld payroll taxes on them. They will be taxed as regular income.
There are also some less common situations that require you to pay the self-employment tax:
U.S. citizens who are employed by a foreign government
Church employees who earn more than 108.28 dollars during the year
Determine your net earnings for the year using IRS Schedule C. Enter your gross earnings on the form, and then subtract all deductions, such as business expenses.
Next, use IRS Schedule SE to figure the tax due on your net earnings from self-employment. Before you calculate the tax, the IRS allows you to deduct 7.65 percent of your net earnings, reducing the amount you will have to pay.
File both Schedule C and Schedule SE with your IRS Form 1040. Enter the amount due for the self-employment tax in the “Other Taxes” section of Form 1040.
You can also claim 50 percent of your self-employment tax as an income tax deduction on Form 1040.
Under most circumstances, the self-employment tax must be paid during the year by filing quarterly estimated tax payments. If you wait to pay the tax until the following April when your annual tax return is due, the IRS may add a penalty charge.
You can make quarterly payments online using the Electronic Federal Tax Payment System, or you can submit vouchers found in IRS Form 1040-ES.
Consult a qualified tax advisor to make sure you do everything right when calculating and paying the self-employment tax.