Self-Employment Tax
The self-employment tax is a tax imposed on self-employment income. It takes the place of the Social Security and Medicare taxes that employers and employees pay on wages.

The tax is calculated in the following steps. It is calculated separately for each spouse in a joint return. This calculator assumes that the income was not earned as a minister or church employee, there are no unreported tips subject to self-employment tax, and that neither of the so-called optional methods of calculating the tax would be used.

1. Multiply the earnings from self-employment by 92.35%. The result is net earnings from self-employment.

2. If the result is under $400, no self-employment tax is due.

3. If the result is $400 or more, subtract wages and tips reported on Form W-2, boxes 3 and 7, from the maximum amount of income that's subject to Social Security tax ($84,900, for 2002).

4. Multiply the smaller of (a) the result of the previous operation, or (b) the net earnings from self-employment, by 12.4%.

5. Multiply the net earnings from self-employment by 2.9%.

6. The sum of these two amounts is the self-employment tax.

If you owe self-employment tax, you can deduct half of it from your income. This deduction helps even out the Social Security and Medicare tax burden between employees, who share their tax obligations 50-50 with their employers, and self-employed people, who pay the entire tax themselves.