Understanding your tax obligations
Self-employment taxes can feel daunting. An understanding of the rules and support from M&T can set your small business up for success.
What is self-employment tax?
If you work for yourself, say, as a small business owner, freelancer or independent contractor, you’re required to pay a federal self-employment tax of 15.3% on net earnings of $400 or more per year. Additional state tax may be due and will vary by state. That federal rate consists of 12.4% for Social Security and 2.9% for Medicare. It’s like the Social Security and Medicare taxes withheld from the pay of a wage earner in a traditional employer-employee arrangement. For 2022, the first $147,000 of your earnings are subject to the Social Security portion of self-employment tax. You can deduct half of your self-employment tax when calculating your adjusted gross income.