Self-employment taxes are to individual business owners what payroll taxes are to employers and employees. They fund Social Security and Medicare.
All individuals with self-employment income must pay self-employment taxes, regardless of their age. When business owners reach retirement age, they’ll be able to collect Social Security and Medicare A (hospital insurance) benefits if they paid self-employment taxes for at least 10 years (40 quarters).
You pay self-employment taxes on your net earnings from self-employment, not your entire business income.
In this article, we will discuss:
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How Much Are Self-Employment Taxes?
·
Individuals Subject to Self-Employment Taxes
·
Net Earnings from Self-Employment
·
Income Not Subject to Self-Employment Taxes
How Much Are Self-Employment Taxes?
Self-employment taxes are not insubstantial: indeed, many business owners pay more in self-employment taxes than income taxes.
Two Components
The self-employment tax has two components:
1.
a 12.4 percent Social Security tax up to an annual income ceiling adjusted for inflation each year ($147,000 for 2022), and
2.
a 2.9 percent Medicare tax on all net earnings from self-employment.
You pay the 12.4 percent Social Security tax on the first $147,000 of net earnings from self-employment. You pay the 2.9 percent Medicare tax on all net earnings from self-employment.
Possible Third Component
If your net earnings from self-employment are over $200,000 ... Log in to view full article.
