Does the standard deduction and personal exemption apply to social-security tax?

[a-armagost-3]

I earned about 13k as self-employed, do i get to deduct the standard deduction and personal exemption before self-employment tax is calculated?

[ChristinaS · Accepted solution]

The Self Employment Tax isn't impacted by your standard deduction or exemptions. The self-employment tax is calculated based on net income from self-employment (Schedule C/ 1040, line 12). The tax carries to the end of your tax return, after your regular tax is calculated. The standard deduction or itemized deductions, nonrefundable tax credits, and exemptions reduce any regular income tax you might pay. They don't impact the SE tax. Only business expenses on the Schedule C can reduce your SE tax.

You can owe SE tax even if you owe no income tax, just like you pay Social Security and Medicare taxes through a job and don't get them back no matter how little you make.

The only things that are applied against SE tax are federal tax payments and refundable tax credits, such as the Earned Income Credit.

If you made $13k in net self-employed income, you are paying little or no personal income tax. But you are paying a decent amount of SE tax.

[AZjoe]

If this is true - that your SE tax is calculated without first taking off the Standard Deduction - then why did Turbo Tax do just that? On our return, our amount owed (which includes Social Security Tax, Medicare Tax, and Federal Income Tax) was all determined after you all took off the standard deduction.  So what you are saying goes against what Turbo Tax did.  They calculated everything off of Taxable Income which came after deducting the Standard Deduction and the Qualified Business Income Deduction.

PLEASE EXPLAIN  

[NCperson]

@AZjoe - that is a very old post and some of the tax rules have changed since then.

There are two taxes: a) income tax and b) Self Employment (SE Tax).

The standard dedution is used to reduce your income BEFORE determining your "income tax".

The SE tax is based on your self-employed income and is NOT reduced by the standard deduction.  Look at Schedule SE and it will show how the SE tax was calculated.   That same number is then carried over to Line 23 of Form 1040.   

[dmertz]

@AZjoe , see Schedule SE where you'll find that self-employment tax is calculated solely from net profit from self employment and is not affected by any deductions reported on Form 1040 or Schedule 1 Part II.  The amount determined to be your self-employment tax carries over to Schedule 2 line 4 and the total from Schedule 2 line 21 is added on Form 1040 line 23, becoming part of your overall tax liability.  TurboTax does all of this properly.