Q&A: I’m self-employed *and* employed, how do I calculate self-employment tax?
Anne edited the following
Question: I’m self-employed *and* employed, how do I calculate self-employment tax?
I am employed (and receive a W2) and I am also self-employed (and file a Schedule C). Both jobs pay approximately the same.
My question is this: deductions, including personal exemption, mortgage interest, property taxes, IRA contributions, etc.: do I get to deduct 15.3% (paid on the self-employment income), or the lesser 7.6% (paid on W2 income)?
Thank you for any information you can offer!
I worded my question wrong, sorry. What I mean is, if I get to deduct a 00 for an IRA contribution from my self-employment income, I save 15.3%; if I deduct it from my W2 income, I only save 7.6%. Deducting from the Schedule C is a better deal, but am I allowed to do so?
ANSWER:
Answer by tro
your self employment tax, on your self employment income(Sch C) is reported on SchSE, and it is approx. 15.3% of your sch C net
and half of that amount is allowed as a credit to reduce your gross income
it is not an itemized deduction, the only allowance you have is the credit cited above
Answer by Wayne Z
Assuming that you are under the Social Security limit for the year:
Your self-employment tax will be 15.3% of 92.35% of your net self-employment income.
One half of this amount is then deducted on the 1040 as an adjustment to income.
The social security and medicare that you pay at your W2 job do not show up on your 1040 at all.
Edit: IRA Contributions do not reduce self-employment tax or your payroll tax on your W2. IRA Contributions only reduce income tax.
For example: If your net self-employment income was 00, you would owe 6 in self-employment taxes. If you turned around and contributed 00 to an IRA, you would still owe 6 in self-employment taxes.
Answer by Judy
Your se income and expenses will go on schedule C, and you’ll use schedule SE to calculate your se tax on that amount. The numbers from the bottom of those two schedules will go onto the same 1040 as your W-2 income and withholding. You’ll be able to take an adjustment on line 27 of the 1040 to deduct half of your SE tax. Except for that, you don’t deduct 15.3% OR 7.6% anywhere.
Re your additional details – your traditional IRA contribution goes on line 32 of your 1040, not on schedule C. Contributions to SEP or SIMPLE plans go on line 28 of the 1040. In either case it doesn’t affect your SE tax.
Your personal exemption, standard or total itemized deductions, and adjustments also go onto that same 1040, but do not affect the SE tax.
If you made quarterly estimated payments, that total will also go on the 1040 with your other withholding.
Answer by ninasgramma
Regarding your IRA contrbution: The deductible contribution is an adjustment to your gross income. The IRA contribution is not deductible from your self-employment income before self-employment taxes are figured. The IRA contribution has no effect on the amount of the Social Security or Medicare taxes you pay either as an employee or as a self-employed person.
If you contributed to a tax-deferred retirement plan at work, this will reduce your taxable income but it will have no effect on your Social Security or Medicare tax that you pay as an employee.
Your personal exemption (,650 per person) and your personal deductions on Schedule A (mortgage interest, property taxes, charitable contributons, etc) reduce your taxable income for income tax purposes. These deductions have no effect on the amount of Social Security or Medicare taxes you pay either as an employee or as a self-employed person.
You can reduce your self-employment tax (the 15.3%) through deductions on Schedule C, which are the expenses of your self-employment activity (advertising, transportation, equipment, etc.).
You can reduce your payroll taxes (the 7.65%) through salary reduction such as a cafeteria plan for health insurance or dependent care expenses.
Answer by StephenWeinstein
The 15.3% self-employment tax and the 7.65% FICA tax on W-2 income are not affected by the IRA deduction, the personal exemption, or any of the other things that you mention. All those things affect only the “income tax”, which is the same on both types of income. The amount you save is not 7.6% or 15.3%. It is either 0%, 10%, 15%, 25%, or more than 25%.
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