Why Are Self-Employment Taxes So Expensive?

Entrepreneurialism

Jun 22

You've heard that self-employment taxes are expensive, and you've probably raised your eyebrow when you made your first payment.

But why are they so expensive?! Let's dive in.

You Pay Employer + Employee Taxes

When you work for an employer, your taxes are automatically deducted from your paycheck. (Which likely includes income tax, social security, and Medicare.)

What you don’t see is that you’re only paying half of your social security and Medicare taxes. Your employer pays the other half.

When you’re self-employed, you are both the employer and the employee, so you pay both halves.

Click here for more info on the social security and Medicare tax rate.

Remember: This doesn’t include income tax. You have to calculate that rate based on how much you earn.

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How to Pay Quarterly Taxes

While you pay these taxes each pay period as an employee, when you’re self-employed, you have to manually make these payments to the IRS quarterly. Not paying what you owe quarterly can lead to late fees. I make my payments here.

But pay attention to the schedule, IRS quarters are wack.

And always make sure to calculate your taxes on NET INCOME. This is your gross income minus your qualifying expenses.

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