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Everything You Need to Know About Self-Employment Tax

If you are a company driver, you probably receive a paycheck every two weeks. From that paycheck, certain payroll taxes are withheld. These include Social Security, Medicare, as well as state and federal taxes. However, when you make the move to becoming an owner-operator, you become entirely responsible for calculating and paying your own taxes.

What is Self-Employment Tax?

In 1935, the United States government passed the Federal Insurance Contribution Act, which most of us know as FICA. This tax was created so that there would be funding for both Social Security and Medicare. This tax amounts to 15.3% of taxable income. Half of the tax is paid by the employer and the other half is paid by the employee.

Self-Employment Taxes

So what happens when someone is self-employed and there is no employer contribution? In 1954 the Self-Employment Contributions Act (SECA) was passed. What is now referred to as the self-employment tax, made it so that anyone who is self-employed would be solely responsible for the entire 15.3% tax payment.

What makes up the Self-Employment Tax?

We have already established that the self-employment tax will be made up of 15.3% of your taxable income, but let’s break it down a little further. This tax is made up of two different parts. The first is for Social Security which is 12.4%. What many people might not know is that there is a maximum income that can actually be taxed for Social Security. In 2024, the limit is $168,600, which is up from $160,200 during the 2023 tax year.

The second part of the self-employment tax covers Medicare. This is made up of 2.9% of your taxable income. Unlike Social Security, there is no limit to the amount of income that can be taxed by Medicare. In fact, Obamacare actually added an additional 0.9% Medicare surtax to any income over a certain amount. If you are a single filer, the surtax would start at any income over $200,000. If you are married filing jointly, the added surtax would be applied on anything over $250,000.

How to File Self-Employment Taxes?

Anyone that claims self-employed income on their tax return will be required to file a Schedule C on Form 1040. This is how you will calculate your net self-employment income. Once you have determined your net income (or loss), if your net income is over $400, you will use this number on Schedule SE of your Form 1040. This will allow you to find out how much self-employment tax you will be required to pay for the year.

If you file a joint tax return with your spouse, and they are self-employed as well, then you will both need to calculate self-employment taxes separately. Some of the rules can get a little tricky, so it’s best to call a tax expert to help guide you through the entire process.

Filing Estimated Taxes When Self-Employed

As a self-employed owner-operator, you’re not only responsible for paying your self-employment taxes, but you’re also responsible for paying estimated taxes each quarter. If you are an ATBS client, then we do most of this legwork for you. We will calculate the amount you owe based on your actual income or with a safe harbor estimate. Then, all you need to do is make your payment each quarter. This helps to simplify your life, allowing you to spend less time figuring out how much you owe, and more time getting back to doing what you love.

The Bottom Line

Deciding to make the jump from life as a company driver to becoming an owner-operator is a big step. While the rewards can be great, it also comes with more responsibility. Instead of having your taxes automatically deducted, you’re now responsible for making sure they’re fully paid. If you find the process a little overwhelming, give us a call at 866-920-2827 and let us do the work for you!

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