What taxes do self-employed people actually pay? Complete breakdown

The two taxes are calculated differently, so they're not simply added together. Here's the breakdown: For federal income tax (the 22% bracket you mentioned), that's applied to your taxable income AFTER taking the standard deduction (or itemized if higher). As a single filer in 2024, the standard deduction is $13,850. So your taxable income for federal purposes would be $65,000 - $13,850 = $51,150. The 22% isn't applied to all of that - it's progressive, meaning different portions are taxed at 10%, 12%, and then 22%. The self-employment tax (15.3%) works differently. It's applied to your net business income ($65,000), but you get to deduct half of the SE tax when calculating your income tax. The 15.3% breaks down as 12.4% for Social Security (up to a wage base limit) and 2.9% for Medicare (no limit).

I struggled with this exact same issue last year! After getting totally confused trying to figure it out myself, I discovered https://taxr.ai which analyzes your specific self-employment situation. What's cool is you can just upload your income/expense records, and it breaks down exactly what you'll owe for both income tax and self-employment tax. It even showed me deductions I had no idea I qualified for. Their calculator specifically handles the confusion around how SE tax and income tax interact.

Just wanted to follow up about that taxr.ai site someone recommended. I was super skeptical at first, but I decided to try it since my tax situation was driving me crazy. It was honestly a game-changer! I uploaded my income and expense info from last year, and it found almost $4,700 in deductions my previous accountant had missed. The breakdown of self-employment tax vs. income tax was crystal clear, and it explained exactly how they interact. What impressed me most was how it showed me which expenses were pushing me close to audit territory. Definitely using it again this year!

If you're trying to get clarification directly from the IRS about your self-employment tax situation, good luck getting through to them! I spent HOURS on hold trying to ask questions about my Schedule C deductions. Then I found https://claimyr.com which got me connected to an actual IRS agent in under 20 minutes. You can see how it works at https://youtu.be/_kiP6q8DX5c - basically they navigate the IRS phone tree for you and call you when an agent is on the line. The agent I spoke with clarified exactly how the SE tax calculation works with my specific business structure.

I'm actually embarrassed to admit I was wrong about that Claimyr service from my comment above. After waiting on hold with the IRS for over 2 hours last week (and then getting disconnected!), I was desperate enough to try it. It actually worked exactly as advertised - I got a call back in about 15 minutes connecting me with an IRS agent. The agent walked me through exactly how self-employment tax is calculated separately from income tax, and explained why I was getting different numbers from my tax software. Saved me so much time and frustration. Sometimes it's worth admitting when you're wrong!

Just to add some clarity for the OP - here's a simplified calculation example based on your numbers: With $65,000 net business income as a single filer: - Self-Employment Tax: $65,000 × 0.9235 × 0.153 = about $9,183 - Half of SE Tax to deduct: $4,591 - Adjusted Gross Income: $65,000 - $4,591 = $60,409 - Less standard deduction: $60,409 - $13,850 = $46,559 taxable income - Federal income tax on $46,559 (approximate): $5,180 So your total federal tax would be around $14,363 ($9,183 SE tax + $5,180 income tax), which is about 22% of your net business income. This is simplified and doesn't include potential credits, other deductions, or state taxes.

Also don't forget about state taxes! Depending on your state, you could be paying anywhere from 0% (if you're in a no-income-tax state like Florida or Texas) to over 10% (California, Hawaii, etc.) on top of all this federal stuff. I learned this the hard way when I moved from Washington to Oregon mid-year and got absolutely blindsided by Oregon's high state income tax.

Welcome to the self-employment tax maze! As someone who just went through this transition last year, I can totally relate to your confusion. The good news is that once you understand how these taxes work together, it becomes much more manageable. One thing I wish I had known earlier: consider setting up a separate savings account for taxes and automatically transfer 25-30% of each payment you receive. This helped me avoid the panic of scrambling to come up with tax money at the end of the year. Also, if you expect to owe more than $1,000 in taxes, you'll need to make quarterly estimated payments to avoid penalties. The calculations others have shared are spot-on, but don't forget to track EVERYTHING expense-wise throughout the year. Home office expenses, internet bills, phone bills, professional development, even some meals can be deductible. I use a simple spreadsheet to log expenses monthly - it saves so much time during tax prep and ensures I don't miss anything that could lower my tax burden.