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How Do Self-Employed People Pay Taxes?

How Do Self-Employed People Pay Taxes?

Individuals working traditional jobs will generally have their taxes withheld automatically by their employers. You should be able to easily find the amount of income tax withheld by inspecting your tax documents.

However, what happens if you do not have an employer? How do you go about paying taxes if you are self-employed?

Just like those traditionally employed, those self-employed do indeed need to pay their taxes. Generally, the individual will be responsible for tracking how much they owe. Because of the challenges this can bring, many choose to work with a personal accountant to help pay their self-employment taxes.

If you are self-employed, here’s what you need to know about paying your taxes in Texas. 

Who Has To Pay Self-Employment Taxes?

If you make your income without an employer, you’re probably going to have to pay self-employment tax. Here’s a short list of types of workers where self-employment taxes may apply: 

  • Independent contractors
  • Sole proprietors of a business or trade
  • Members of a partnership that carries on a trade or business
  • Gig workers
  • Part-time business owners

While most employees receive a W-2, contractors and business owners will have a few different forms they will need to properly file their taxes. These can include a 1099-NEC, Form 1040, or 1040-SR. 

A tax accountant can help you if you’re unsure where to start.

How Much Is the Self-Employment Tax Rate?

The self-employment tax rate is typically around 15.3%, which is paid into Social Security and Medicare. However, this is higher than what traditional employees pay. That’s because employees pay half of this tax while the employer pays the other half.

To counter this issue, you can deduct 7.65% of your income to pay the employer’s half. This reduces your taxable income, so you pay a bit less in taxes.

What Taxes Do Self-Employed People Pay?

Those who are self-employed pay similar taxes to other traditional employees. Here are the various types you can expect to pay while self-employed:

  • Self-employment tax
  • Income tax
  • Sales tax
  • State tax (where applicable)

Income and sales taxes are paid by every working American, while self-employment tax only by those who fall under the category. Most states have a sales tax, but some counties and cities will have their own sales tax on top of that.

How To Calculate Self-Employment Taxes

This can be a bit tricky, so don’t be afraid to contact a personal accountant if you’re overwhelmed or afraid of making a mistake:

  1. Calculate your net self-employment income by subtracting your expenses from your gross income.
  2. Find your tax bracket by determining how you will be filing and your income. The rates are different depending on your situation (ex. single filer versus filing jointly)
  3. Figure out if your net earnings are over $147,000 since you will need to calculate anything above that at a different rate.
  4. The self-employment tax rate is 15.3% for net income under $142,800. If you make over that, any additional income is taxed at 2.9%.

Trust Gonzalez & Arrambide With Your Self-Employed Taxes

If you’re worried about the IRS coming after you, there’s a simple solution. Trust the professional tax accountants at Gonzalez & Arrambide. We can help you file your self-employment taxes with confidence. Don’t delay, contact us today for your free consultation!