Question: How Do I Calculate Net Earnings for Self-Employment Tax?

Self-employed individuals are required to pay Social Security and Medicare tax on the net earnings of their business. These taxes are called, collectively, "Self-employment Taxes."

Calculating net earnings for self-employment tax

Net earnings are the profits or net income of your business. Net earnings are determined by gross earnings minus your allowable business deductions and depreciation.

To calculate net earnings, a small business will use Schedule C, which is part of the individual tax return forms. Then, the net earnings total forms the basis for calculating self-employment taxes on Schedule SE. 

Income not considered in net earnings for self-employment tax purposes
Some income does not count for Social Security and should not be included in ­figuring your net earnings:

• Dividend income, unless it is received as a dealer in stocks and securities
• Interest from loans, unless you are a real estate dealer or you regularly provide services mostly for the convenience of the occupant, or
• Income received from a limited partnership.
  For more information on net earnings for Social Security, see SSA Publication "If you are self-employed"
  

 

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