Self employment tax

[trberkovich]

The community has advised that the self-employment tax is 14.1% of net business income.  Will you confirm that net business income is gross business income minus business expenses?  And please clarify the following.  My son's net business income is about the same as the standard deduction so his taxable income is almost zero.  Does he still need to pay the 14.1% of net business income or about $2,400 of self-employment tax?

[MinhT1 · Accepted solution]

Yes.

Self-employment tax is in addition to income tax. It is calculated at 15.3% of 92.35% of net business income. Net business income is gross income less deductible business expenses.

[dmertz]

14.1% is a not-quite-accurate oversimplification.  That number is actually 92.35 % of 15.3% = 14.12955%.  However, that only applies in a certain range of net profit and also can depend on whether any Social Security tax is paid via a W-2 employer.  If net profit is $433 or less, self-employment tax is $0.  If 92.35% of net profit is greater than the Social Security wage base reduced by any amount of Social Security wages reported on a W-2, the portion of 92.35% of net profit that is above that is only subject to 2.9% (just Medicare tax).

It's all calculated on Schedule SE.  TurboTax prepares Schedule SE automatically.