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### Self-Employment Taxes Explained

1. How to Calculate Self-EmploymentTaxes
2. Pay, \$92,350 Your Share of Payroll Taxes, \$7,650 (Before other taxes are withheld) If you earned \$100,000 as an employee, then you would expect \$7,650 (7.65%) to be withheld from your pay for payroll taxes. Employee
3. (Before other taxes are withheld) Your Employer is also paying the same amount in payroll taxes on your behalf, 7.65% of your income. However… When you’re SELF-employed you have to pay both the employer and employee portions of the payroll tax. But the formula is NOT just a straight double of your payroll tax rate from 7.65% to to 15.3% Employee Pay, \$92,350 Your Share of Payroll Taxes, \$7,650 Employer's Share of Payroll Taxes, \$7,650
4. (Before other taxes are withheld) Adding the “employer’s share” slice grew the overall money pie from \$100,000 to \$107,650. If your self-employment income is \$100,000 you don’t pay the same amount of payroll tax out of your \$100,000 that an employee/employer combination is paying out of \$107,650 ..and you shouldn’t! Self-Employed Pay, \$92,350 Your Share of Payroll Taxes, \$7,650 Employer's Share of Payroll Taxes, \$7,650 Why the math gets tricky: (Before other taxes are withheld)
5. The IRS allows you to subtract 7.65% of your self-employment income before you calculate the self-employment tax. In our \$100,000 example it looks like this: 15.3% X (1-0.0765) X \$100,000 = 15.3% X 0.9235 X \$100,000 = \$14,130 (or 14.130%) Self-Employed The IRS Solution! Pay, \$92,350 Your Share of Payroll Taxes, \$7,650 Employer's Share of Payroll Taxes, \$7,650 (Before other taxes are withheld)
6. Paying 14.130% in Self- Employment taxes isn’t fun, but it’s better than paying 15.3%. In this example it’s \$1,170 better! And now you know why the IRS has that goofy adjustment formula when figuring your self-employment tax If you have questions contact me at http://pimtax.com/contact-form
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