Need help understanding Federal and State Quarterly payments for self-employment (private contract). Am I paying 15.3% for each? What about social security and Medicaid?

[wateroosterah]

So I understand that I owe 15% federal plus social security and Medicaid which currently estimates to 23% I think. But then I read somewhere else that income tax has to be added in addition to that? Then what about Maryland state tax? All I can find is the number 15.3% and the Maryland Gov. website is calculating me closer to 7% even though I marked 0 employer withholding.

[VolvoGirl]

The 15.3% is only for the federal self employment tax.  You will also pay regular income tax on the schedule C Net Profit.

You are paying 15.3% for…..
SS for employer 6.2%
SS for employee 6.2%
Medicare for employer 1.45%
Medicare for employee 1.45%

Self Employment tax (Scheduled SE) is automatically generated if a person has $400 or more of net profit from self-employment. You pay 15.3% SE tax on 92.35% of your Net Profit (If it is greater than $400). The 15.3% self employed SE Tax is to pay both the employer part and employee part of Social Security and Medicare (FICA). So you get social security credit for it when you retire.

The SE tax is already included in your tax due or reduced your refund. It is on the 1040 Schedule 2 line 4 which goes to 1040 line 23. The SE tax is in addition to your regular income tax on the net profit.

[SweetieJean]

@wateroosterah I think you mean Medicare, not Medicaid.

[wateroosterah]

Okay, so 15.3% total for federal tax, plus income tax. 

Then what is the typical standard for state self-employment?

[xmasbaby0]

@wateroosterah There are 37 states with a state income tax---which state are you asking about?

[JohnB5677]

@VolvoGirl described the self-employment tax perfectly.

Here is a list of the State tax rates.  If your state has a progressive tax rate (you pay more if you earn more) you will have to base your tax withholding on all of your earned income, not only the business.

A State-by-State Comparison of Income Tax Rates

  From State Income Tax Rates

[Opus 17]

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@wateroosterah wrote:

Okay, so 15.3% total for federal tax, plus income tax. 

Then what is the typical standard for state self-employment?

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Your marginal federal tax rate will be 10%, 12%, 22%, or 24%, depending on your income (possibly up to 36% if you are really high income).  Self-employment tax is about 15%.  You may also owe 3%-13% state income tax depending on what state you live in.

You file one tax return for the year that lists all your income, deductions, credits and dependents.  If you are self-employed, you include a schedule C to report your gross income and expenses.  You pay 15% SE tax on your net business profit (taxable income), and the taxable income also flows to your federal return where it is combined with any other income (such as your or a spouses W-2 job, investments, etc.) and your dependents and other deductions, to determine your final income tax.  Your income and SE tax are added together and that's what you owe.

For most "middle class" taxpayers, making Federal estimated payments of 30% of your net income after expenses, is probably close enough or even a bit extra.  You likely also need to make state estimated payments based on your state's income tax rates.