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Taxes are unavoidable and without planning, the annual tax liability can be very uncertain.
Self-employment taxes are comprised of two parts: Social Security and Medicare. You will pay 6.2 percent and your employer will pay Social Security taxes of 6.2 percent on the first $118,500 of your covered wages. You each also pay Medicare taxes of 1.45 percent on all your wages – no limit. If you are self-employed, your Social Security tax rate is 12.4 percent and your Medicare tax is 2.9 percent on those same amounts of earnings but you are able to deduct the employer portion. You will pay an additional 0.9% Medicare tax on the amount that your annual income exceeds $200,000 for single filers, $250,000 for married filing jointly, and $125,000 married filing separate. Use this calculator to estimate your self-employment taxes.
Tax-free investments such as municipal bonds have lower yields due to their tax-exempt status.
Did you withhold enough in taxes this past year?
It might surprise you how many days you would have to work to pay your estimated federal tax liability (including Social Security tax withholdings).