What is Self-Employment Tax (and why do I have to pay it?)

All self-employed people who show a profit must pay at least some Self-Employment Tax. This video dives into what the tax is, who must pay it, and how the tax is calculated.
2023 UPDATE:
The maximum amount of net self-employment income subject to the Social Security portion of the Self-Employment Tax is $160,200 for 2022.
Video resources:
IRS Publication 334: "Small Business Tax Guide": www.irs.gov/pu...
IRS Schedule SE: "Self Employment Tax": www.irs.gov/pu...
For an overview of self employment as it relates to taxes, click here: • Are you self-employed?...
The Tax Geek on The Site Formerly Known as Twitter: @taxgeekusa
Intro and background music: “Bluesy Vibes” - Doug Maxwell - KZbin Audio Library
DISCLAIMER:
The information presented in this video is for informational and educational purposes only, and is not intended to render tax advice for specific situations. If you have questions about your specific tax situation, please consult the resources linked above or consult with a qualified tax professional in your community.
The information contained in this video is based on tax law and IRS regulations as of the date of publication, and may be subject to change.

[@TheTaxGeek]

2023 UPDATE: The maximum amount of net self-employment income subject to the Social Security retirement rate is $160,200 for 2023.

[@tomtran8849]

would you please help me to figure estimated taxes for 1099 and/or W-2 workers? Thank you.

[@TheTaxGeek]

If you have workers you issues 1099s to, you don't have to figure any taxes out for them. For employees you issue a W2 to, the best thing is to use software or a payroll service to calculate the taxes. Unfortunately, I cannot offer specific assistance to any viewer.

[@ochicoloto3524]

not binding. need to be more explicit. where is .9235 coming from?

[@TheTaxGeek]

When you pay self-employment tax, you are entitled to take 1/2 of the amount of the tax as an adjustment to income, lowering your taxable income. That works out to 7.65% of net business income. The amount of business net income is then reduced by that percentage in computing self-employment by multiplying it by .9235 (1 - .0765). Otherwise you would end up paying tax on that adjustment. I know it kind of goes around in circles, but it's not the only thing in the tax code that does.