When you work for yourself, the IRS requires you to pay both the employee and employer portions of Social Security and Medicare taxes. This is known as the self‑employment (SE) tax and is currently set at 15.3 % of your net earnings from self‑employment.
How the SE Tax Is Calculated
Determine your net earnings by subtracting allowable business expenses from your gross business income.
Only 92.35 % of those net earnings are subject to SE tax. This adjustment reflects the fact that the employer portion of the tax is deductible.
Apply the 15.3 % rate to the adjusted earnings:
SE Tax = Net Earnings × 0.9235 × 0.153
Deduction for Income Tax Purposes
The IRS allows you to deduct **half of the self‑employment tax** when calculating your adjusted gross income (AGI). This deduction reduces the amount of income subject to regular income tax.
What This Calculator Does
Enter your gross business income and total business expenses. The tool will:
Compute net earnings.
Calculate the total self‑employment tax.
Show the deductible portion (half of the SE tax) that you can claim on your Form 1040.
Example
Suppose you earned $85,000 in gross business income and had $15,000 in expenses.
Net earnings = $85,000 – $15,000 = $70,000
Adjusted earnings = $70,000 × 0.9235 = $64,645
SE Tax = $64,645 × 0.153 ≈ $9,894
Deduction = $9,894 ÷ 2 ≈ $4,947
The calculator will display a deduction of approximately $4,947.
Why It Matters
Accurately calculating this deduction can lower your taxable income, potentially saving you hundreds or thousands of dollars on your federal income tax bill.
Tips for Accurate Results
Include all legitimate business expenses (supplies, travel, home office, etc.).
Keep records of both income and expenses throughout the year.
Consult a tax professional if you have complex situations such as multiple businesses or additional adjustments.
function calculateDeduction(){
var gross = document.getElementById('grossIncome').value;
var exp = document.getElementById('expenses').value;
var resultDiv = document.getElementById('result');
// Validate inputs
if(gross=== " || exp=== " || isNaN(gross) || isNaN(exp)){
resultDiv.style.background='#dc3545′;
resultDiv.innerHTML='Please enter valid numeric values for both fields.';
return;
}
var grossNum = parseFloat(gross);
var expNum = parseFloat(exp);
if(grossNum < 0 || expNum < 0){
resultDiv.style.background='#dc3545';
resultDiv.innerHTML='Values cannot be negative.';
return;
}
// Net earnings
var net = grossNum – expNum;
if(net < 0){
resultDiv.style.background='#dc3545';
resultDiv.innerHTML='Expenses exceed income. Net earnings cannot be negative.';
return;
}
// Adjusted earnings for SE tax
var adjusted = net * 0.9235;
// Self‑employment tax
var seTax = adjusted * 0.153;
// Deduction (half of SE tax)
var deduction = seTax / 2;
// Format as currency
var formatter = new Intl.NumberFormat('en-US', {style:'currency', currency:'USD'});
resultDiv.style.background='#28a745';
resultDiv.innerHTML='Deductible Self‑Employment Tax: ' + formatter.format(deduction) + '';
}