Self-Employment Tax Example

Let’s say that you had $100k of self-employment income on your Schedule C. When figuring out the self-employment tax that you owe on your Form SE, you get to reduce the self-employment income by half of the self-employment tax rate. So in our example, that means [$100k – ($100k x 15.3% / 2) = $92,350]. Then you apply the 15.3% tax to the $92,350, and you’d owe self-employment tax of $14,129.55. This deduction saves you $1,170.45 versus paying 15.3% on the full $100k. The $14,129.55 you owe in self employment taxes would then go to the “other taxes” section of your Form 1040.

There is one more deduction though! You can claim 50% of what you paid as self-employment tax as an adjustment to income on Schedule 1 Part 2 (you’ll see this deduction on Line 13 of Form SE and it will flow through to the Form 1040 via Schedule 1). So our $14,129.55 x 50% = a $7,064.78 deduction to our adjusted gross income, and reduces what you have to pay income taxes on.

Note that if your income is above $142,800 the self-employed tax will actually be lower on every dollar you earn above that threshold. This is because the Medicare tax applies to all income, but the 12.4% Social Security tax is only on the first $142,800 of income.