This free online self-employed tax calculator will estimate your 2015 medicare and social security taxes based on your forecasted income, and calculate the deduction that will lower your Adjusted Gross Income.
Plus, the calculator also has a built-in feature that will annualize income forecasts based on non-annual amounts.
And finally, included in the results will be a printer friendly, auto-completed 2015 Self-Employment Tax and Deduction Worksheet that can then be used to complete the 2015 Estimated Tax Worksheet (IRS Form 1040-ES).
If you are employed by a company, your employer is required to withhold medicare and social security taxes from your paycheck. Nothing new there, right?
However, what you may not know is that your employer is also required to match the medicare and social security taxes being withheld from your paychecks. In other words, the medicare and social security taxes paid by your employer are twice the amount being withheld from your check.
Of course, if you are your own employer (self-employed), then guess who gets to pay the medicare and social security match amount? That's right, YOU DO!
So self-employment tax is basically the matching amount you pay as your own employer, plus the tax amount you pay as your own employee.
Furthermore, even if you earn wages from an employer, but you earn more than $400 annually from a side business of your own, you will still need to pay self-employment taxes on the profits your side business generates.
The following chart shows the medicare and social security tax rates for 2015:
|Social security rate:||6.2%||6.2%||12.4%|
|Total tax rate:||7.65%||7.65%||15.3%|
Note that the social security tax rate is applied to a maximum income of $118,500. Also note that higher incomes may be subject to an additional .9% medicare rate for medicare wages earned in 2015.
While a self-employed person pays twice the medicare and social security taxes that an employee pays, one small consolation is that the IRS allows the self-employed person to deduct 50% of his/her self-employment taxes from income that is subject to federal income taxes.
Why do I consider this deduction to be a small consolation? Because if you are self-employed and paying, say $4,000 per year more in medicare and social security taxes than an employee pays, and you are in a 25% tax bracket, the self-employment deduction means you are still paying $3,000 more in medicare and social security taxes than an employee who is making the same amount of money (a $4,000 deduction would only result in a $1,000 tax savings).
Is that fair?
From my perspective, it's most certainly NOT fair. Unfortunately there are far more employees than there are self-employed individuals, so we don't have unions and lobbyists fighting for our rights in Washington. Nor do we have the numbers to elect politicians who will represent our interests equal to those of "the entitled" or of the mega corporations.
But as unfair as self-employment taxes are, I still consider having to pay them as being the lesser of two evils. I would much rather pay an unfair share of taxes than enslave myself to a boss -- especially considering some of the bosses I've had (egos much larger than their IQs).
With that, let's use the Self-Employed Tax Calculator to estimate your medicare and social security taxes based on your expected profits from self-employment.
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Profits subject to SE tax: Enter your expected income and profits subject to self-employment tax in the far right-hand field. Or, if you would like to enter a non-annual amount and have the calculator annualize it for you, enter the profit amount per period in the far left-hand field and then select the profit period.
CRP payments: If you will receive farm income and also receive social security or disability benefits, enter any CRP (Conservation Reserve Program) payments you expect to receive.
Expected wages subject to social security tax: Enter your expected wages (if subject to social security tax or the 6.2% portion of tier 1 railroad retirement tax). This field is combined with your expected self-employment income to determine whether or not your total income will exceed the social security tax maximum income.
Medicare tax: Based on your entries, this is the estimated medicare taxes you will owe, which is 2.9% of your expected profits.
Social security tax: Based on your entries, this is the estimated social security taxes you will owe, which is 12.4% of your expected profits (up to a maximum income of $118,500 for 2015).
Estimated self-employment tax: This is the combined total of your medicare and social security taxes, which is 15.3% of your expected annual profits.
Total self-employment tax deduction: This is the amount that can be used to reduce the amount of taxable income when figuring your total estimated federal taxes for the year. The deduction is equal to 50% of your self-employment tax.