V * asked:
I am Self Employed.
Someone told me I have to pay back 30% of what I make each year to taxes.
My friend told me that the percentage you have to pay back is different for each state, and it depends on how much you make.
Also that it’s different for Self-employed people.
Can anyone explain this and clear it up for me? I’m clueless.
I’m 17 I make around $500-$800 a month self employment. I live in the state Ohio.
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4 users responded in this post
That 30% estimate is a good starting point for FEDERAL only and doesn’t count your state, which, yes, is different for every state. Here is the breakdown:
15% - the tax bracket that most people are in - it is what the govt gets for INCOME tax on the last dollars of your income
6.2% - for social security tax - employee’s half
1.45% - for medicare tax - employee’s half
6.2% - for social security tax - employer’s half - because u r self-empl
1.45% - for medicare tax - employer’s half - because u r self-empl
= total of 30.3% for the three federal taxes only
then add the tax rate for your state
The 15% is only a guess based on what most middle class taypayer pay. If your total income - this self-employment plus wages plus all other income is higher, the 15% could be higher - if your total income is lower, the 15% could be lower.
In case you don’t know, the state and fed don’t want to wait until the end of the year. So you need to submit quarterly estimated tax payment to both the fed and your state. If you don’t, there will be an underpayment penalty added to what you owe at the end of the year.
If your state doesn’t have an income tax, 30% is a good starting poing for Federal but it can go higher if you make alot of money. Add an applicable percentage for state taxes if your state has an income tax.
One big thing to remember though, the tax is calculated on your net self-employment income, not your gross. You are allowed to deduct your self-employment expenses first before calculating the tax.
What you’ll pay in taxes if you’re self-employed will depend upon your total income and whether or not your state has an income tax and if so, what the tax rate is. It might be 30% and that can be a reasonable guess if your total income is modest, but it could just as easily approach 50% if you live in a high-tax state and have very high self-employment income.
A self employed person pays in more for social security and medicare, since for an employee the employer pays half of it, and as self employed, you ARE essentially the employer AND the employee. It’s the same calculation though no matter where you live.
Federal income tax is the same no matter where you live. What is different by state is state income tax.
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