Self-Employment Tax Calculation When Income is Over the Social Security Wage Base

How does the calculation for self-employment tax work when self-employment income is over the Social Security Wage Base? Let’s take a look.

Basic Calculation

When self-employment income is below the Social Security Wage Base, the calculation is straightforward.

Let’s say your self-employment income is \$50,000, well below the Social Security Wage Base. You take \$50,000 x .9235 = \$46,175; \$46,175 x .153 = \$7,065.

Self-Employment Income Over Social Security Wage Base

The 2018 Social Security Wage Base was \$132,900. Let’s say you had self-employment income of \$150,000. Here’s how the calculation works.

TIP: remember the self-employment tax totals 15.3% for most people, but the tax is technically 12.4% Social Security and 2.9% Medicare. That comes into play in this calculation.

First take \$150,000 x .9235 = \$138,525. This is above the \$132,900 Social Security Wage Base for 2018. So the maximum tax here is \$132,900 x .124 = \$16,480. Meanwhile the full \$138,525 is subject to Medicare tax, so take \$138,525 x .029 = \$4,017. Then add \$16,480 and \$4,017 = 20,497.

Remember to Multiply By 92.35% First!

Remember that self-employment tax asks you to first multiply self-employment income by 92.35% (why? I tried to answer [maybe not so successfully!] in this post.) If your self-employment income after the multiplication is less than the Social Security Wage Base, then you wouldn’t worry about the wage base.

Let’s say your self-employment income is \$140,000. This is above the Social Security Wage Base … but you must multiply it by 92.35% first before calculating the tax and before the wage base comes into play.

So, 140,000 x .9235 = \$129,290. This is below the Social Security Wage Base, and so you’d pay self-employment tax based on \$129,290 without worrying about the wage base.