For self-employed people, that rate is actually 20%. In researching this, I found a helpful IRS link that you should be very interested in. Pay particular attention to a worksheet entitled Deduction Worksheet for Self-Employed. Here it instructs you to enter your deduction for your self employment tax. Your deduction that is listed as an adjustment to income is listed in Schedule ! of your return and is 1/2 of your actual Self-employment tax imposed on your net earnings.
Now to determine S/E tax you do the following: Keep in mind, these may not be exact amounts but will be close.
- Take ($42671)(.9235)(.153)= $6029
- 1/2 of this amount is $3015
- ($42671 -3015)(.2) =$7931 That is the maximum you can contribute this year.
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