California Self-Employment Tax Calculator
Your estimated California Self-Employment Tax will appear here.
Understanding California Self-Employment Tax
Self-employment tax in California, as in the rest of the United States, primarily consists of Social Security and Medicare taxes. These taxes are levied on the net earnings from self-employment. Unlike employees who have these taxes withheld by their employer, self-employed individuals are responsible for calculating and paying these taxes themselves, typically through estimated tax payments throughout the year.
How is California Self-Employment Tax Calculated?
The calculation involves several steps. It's important to note that the Self-Employment Tax is a federal tax, not a state-specific tax levied by California. However, self-employed individuals residing in California are subject to these federal requirements.
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Calculate Net Earnings from Self-Employment: This is your gross income from your business minus your allowable business expenses.
Formula: Net Earnings = Gross Income – Business Expenses -
Determine Taxable Self-Employment Income: You can deduct one-half of your self-employment tax when calculating your income subject to income tax. However, for the calculation of self-employment tax itself, you multiply your net earnings by 92.35% (or 0.9235). This is because the tax is applied to the earnings after a notional employer's share of FICA taxes is accounted for.
Formula: Taxable SE Income = Net Earnings x 0.9235 -
Calculate Social Security and Medicare Taxes:
- The Social Security tax rate is 12.4% on earnings up to an annual limit ($168,600 for 2024).
- The Medicare tax rate is 2.9% on all earnings.
- The combined self-employment tax rate is 15.3% (12.4% + 2.9%).
Formula: SE Tax = Taxable SE Income x 0.153 - Apply Limits: For Social Security, if your taxable self-employment income exceeds the annual limit ($168,600 for 2024), the 12.4% portion only applies up to that limit. The 2.9% Medicare tax applies to all earnings.
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Deduct Half of SE Tax: As mentioned earlier, you can deduct one-half of the calculated self-employment tax from your gross income when calculating your adjusted gross income for federal income tax purposes.
Formula: SE Tax Deduction = SE Tax / 2
Example Calculation
Let's assume a self-employed individual in California has an estimated annual income of $80,000 and total business expenses of $15,000 for the year 2024.
- Net Earnings: $80,000 (Income) – $15,000 (Expenses) = $65,000
- Taxable SE Income: $65,000 x 0.9235 = $60,017.50
- Estimated SE Tax: Since $60,017.50 is below the Social Security limit ($168,600 for 2024), the full 15.3% rate applies. $60,017.50 x 0.153 = $9,182.66
- SE Tax Deduction: $9,182.66 / 2 = $4,591.33
In this example, the estimated self-employment tax is approximately $9,182.66. An additional deduction of $4,591.33 can be taken for income tax purposes.
Important Considerations for Californians
While the core self-employment tax is federal, California has specific state income tax considerations. Self-employed individuals in California must also pay state income tax on their net earnings after deductions. It is crucial to consult with a tax professional familiar with both federal and California tax laws to ensure accurate filing and to take advantage of all applicable deductions and credits. Keeping meticulous records of income and expenses is vital for accurately calculating both self-employment tax and income tax.