There are no self-employment brackets. The tax brackets are the same for everyone. It's based on taxable income. When you are self-employed, YOU must calculate, on your Schedule C (whichever version applies) plus supporting forms and schedules, what your net business income is - not the gross, but what you...
Best answer: There are no self-employment brackets. The tax brackets are the same for everyone. It's based on taxable income. When you are self-employed, YOU must calculate, on your Schedule C (whichever version applies) plus supporting forms and schedules, what your net business income is - not the gross, but what you earned after all allowable business deductions were taken.
After that, it's the same for everybody. The person who has $40,000 in taxable income from a job after all allowable deductions will owe the same INCOME tax as a self-employed person with the same exact taxable income.
The only difference between the wage-earner and the self-employed person is that the self-employed person will pay somewhat more tax in total. That is because, in the US, when you are a wage-earner, the taxes you owe for the Social Security retirement benefit and Medicare coverage at age 65 are deducted, by law, from your pay by your employer. The employer must match that amount, and pay the total to the federal government. It's called the 'payroll tax'.
When you are self-employed, you are both employer and employee. As the employee, you pay the same payroll tax as any employee, a percentage of your earnings. As employer, you must pay the employer's share. So you end up paying both halves of it.
So, the bottom line is, how much of that £120,000 is net income? Let's say, for the sake of example, that you clear, after business costs, £80,000. That's roughly equal to $107,000 USD.
In the US, someone with that income who is single will have it reduced by the $12,000 standard deduction (if they have allowable itemized deductions, it can be reduced further). So they would have taxable income of $95,000.
The first just under $10 k is taxed at 10%. Anything up to $77,000 is taxed at 12%. The remaining is taxed at 22%. Their overall (or blended) rate might be about 15% Add to that the 7.65% payroll tax that came out of their $107,000 gross wages. Total tax rate about 22.5% not counting any state or local taxes. Many states have no state income tax. For the self-employed, their income tax would be the same at about 15%. The self-employment tax of about 15% would make their total tax rate about 30% before state and local taxes.
2 days ago