Who Pays Self-Employment Tax?
If you operate your own business, the IRS considers you self-employed. This includes:
Sole proprietors (including independent contractors)
Partners in a partnership (including members of multi-member LLCs treated as partnerships)
Members of a single-member LLC (disregarded for federal income tax purposes)
Members of a qualified joint venture
Essentially, if you're in business for yourself, this probably applies to you.
How Much Do You Owe?
You generally must pay self-employment tax if your net earnings from self-employment are $400 or more. The amount subject to self-employment tax is generally 92.35% of your net earnings from self-employment. Net earnings are calculated by subtracting your ordinary and necessary business expenses from your business's gross income.
You may still be required to pay self-employment tax even if you currently receive Social Security benefits. While there's a limit to the amount of net earnings subject to Social Security tax, all your net earnings are subject to Medicare tax.
The self-employment tax rate is the combination of Social Security and Medicare taxes:
12.4% for Social Security
2.9% for Medicare
Optional Methods for Calculating Net Earnings
If you experienced a loss or had a small income from self-employment, you might benefit from using an optional method to calculate your net earnings. Check the instructions for Schedule SE (Form 1040) to see if you qualify. This could give you credit toward your Social Security coverage or increase your eligibility for the earned income credit or the child and dependent care credit.
Special Case: Church Employees
If you're an employee of a church or qualified church-controlled organization exempt from Social Security and Medicare taxes, you must pay self-employment tax if the church paid you more than $108.28 (unless you're personally exempt). If this applies to you, include Schedule SE (Form 1040) and Schedule 2 (Form 1040) with your tax return. For more information, check out Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers.
Additional Medicare Tax
Keep in mind that an Additional Medicare Tax applies to self-employment income above certain thresholds:
$250,000 for married filing jointly
$125,000 for married filing separately
$200,000 for all other filing statuses
See the Instructions for Form 8959, Additional Medicare Tax, for more details.
How to Report and Deduct
Calculate your self-employment tax using Schedule SE (Form 1040). When you file your Form 1040, 1040-SR, or 1040-NR, you can deduct one-half of your self-employment tax. This deduction is calculated on Schedule SE (attach Schedule 1 (Form 1040)). Remember, the Social Security Administration uses the information from Schedule SE to determine your Social Security benefits.