Self-Employed
Tax Calculator 2023

How is income tax calculated?

Your income sources will depend on which and how much taxes you'll have to pay. For example, if you're an employee with self-employment or 1099 income, you'll most likely be paying Federal, State, FICA, and SECA taxes. As state deductions can vary or change, please check with your state's tax website for the latest values.

Federal Tax = Taxable Income * Marginal Tax Rate‍
‍FICA Tax = Gross Income * 15.3%‍
‍State Tax = Taxable Income * Marginal Tax Rate
‍‍Self-Employment Tax = (Taxable Income * 92.35%) * 7.65%

Taxable income is generally gross income minus deductions. However, when it comes to self-employment taxes, you'll multiply your taxable income by 92.35% before applying the tax rate.

What is FICA tax?

The Federal Insurance Contributions Act (FICA) tax is a U.S. federal payroll tax usually deducted from each paycheck. The FICA tax is your Social Security and Medicare taxes combined. It taxes 15.3% of your gross wages, half of which your employer covers. This means you'll have to pay the remaining 7.65%.

Where does my FICA tax go?

With the FICA tax, 6.2% of your gross wages go to Social Security taxes, while 1.45% goes to Medicare taxes.

Why does FICA tax matter?

Social Security and Medicare programs wouldn't have enough funding without FICA taxes. By paying FICA taxes, benefits for children, the disabled, and retired people are ensured.

What is Self-Employment Income Tax?

Like the FICA tax, the Self-Employed Contributions Act (SECA) taxes are paid by self-employed people. Since they are their employer, they'll need to pay both portions of the FICA tax. This tax will amount to 15.3% of your net self-employed income. Thankfully, tax write-offs and business deductions will help lower the tax. As it's very important to keep a record of your receipts for tax deductions, it is highly recommended to use an expense tracker.

When do I have to pay self-employment tax?

You must pay SECA taxes (regardless of age) when your self-employment net income (excluding church employee income) is $400 or more. Or if you have a church employee income of $108.28 or more. Generally, you'll be using Schedule C or Schedule SE to figure out your self-employment taxes.

What is Federal Income Tax?

Based on income, the Federal Income Tax is a tax that individuals or businesses pay to the U.S. government. The Internal Revenue Service (IRS) handles the federal income tax, which is calculated based on a person's taxable income. The taxable income generally consists of total income earned subtracted by deductions and credits.

How is Federal Income Tax calculated?

Using your taxable income, the amount of tax owed will depend on the tax rate and income tax bracket you're placed in. Since it is a progressive tax, you'll pay taxes in each bracket as your income increases. This means you'll pay fewer taxes as it isn't a flat tax rate.

Example of Federal Income Tax Calculation

Suppose there are three tax brackets with the following tax rates:

• 10% tax rate for income up to $100
• 15% tax rate for income between $100 and $1000
• 20% tax rate for income above $1000

If Jesse has a taxable income of $1500, the first $100 of their income is taxed at a rate of 10%. Then the amount between $100 and $1,000 will be taxed at a rate of 15%. Finally, the remaining amount after $1,000 will be taxed at 20%. With progressive tax, the total federal income tax will be $245, compared to a flat tax rate of 20% ($300).

The progressive tax system allows higher-income people to be taxed more fairly, reducing income inequality as the tax burden is distributed.

What is State Income Tax?

In addition to paying federal taxes, you'll also be paying state taxes. While most states have their own deductions, others choose not to tax income. Like the federal tax, state income is based on taxable income and is calculated similarly. The only difference is that each state generally has its own income tax brackets and tax rates.