CHAPTER 45Figuring Self-Employment Tax
Self-employment tax provides funds for Social Security and Medicare benefits. The self-employment tax is calculated on Schedule SE. You are required to prepare Schedule SE if you have self-employment net earnings of $400 or more in 2021, but you will not incur the tax unless your net self-employment earnings exceed $433.13. The tax is added to your income tax liability. When preparing your estimated tax liability, you must also include an estimate of self-employment tax; see Chapter 27.
On Schedule SE, self-employment income is reduced by a deduction reflected in the decimal of .9235 listed on the form. You also deduct one-half of the self-employment tax on Line 15 of Schedule 1 (Form 1040 or 1040-SR).
For 2021, the self-employment tax of 15.3% consists of the following two rates: 12.4% for Social Security and 2.9% for Medicare. After multiplying the net earnings by .9235, the combined 15.3% rate applies to a taxable earnings base of $142,800 or less; the 2.9% rate applies to all taxable earnings exceeding $142,800.
You are required to pay self-employment tax on self-employment income even after you retire and receive Social Security benefits.
If you opted in 2020 to defer the “employer portion” of Social Security taxes that are part of self-employment tax, you must pay 50% in 2021 (45.7).
Get J.K. Lasser's Your Income Tax 2022 now with the O’Reilly learning platform.
O’Reilly members experience books, live events, courses curated by job role, and more from O’Reilly and nearly 200 top publishers.
