Income: the typical brackets we hear about – calculated based on your adjusted gross income less your deduction (standard or itemized). Our current brackets are 10%, 12%, 22%, 24%, 32%, 35%, and 37%
Employment Tax:
Social Security: 12.4%
Medicare: 2.9%
Net Investment tax: 3.8% on income over 200,000 for an individual
When an individual is an employee and receives a W-2, the employer pays ½ of the employment taxes
The Employee pays 6.2% of their wages for social security and 1.45% for medicare through their withholding on their paychecks
The Employer pays the same
When an individual is self employed (schedule C or partnership), the individual pays all of the employment taxes (total of 15.3% of the business net income).
As an employee, you complete a W-4 which determines the withholding. Sometimes it’s enough and sometimes it’s not. When it’s not, you can adjust your withholding by filling out the W-4 again and requesting a specific dollar amount of additional withholding.
When you are self-employed, no taxes are withheld. That means that you are responsible for submitting all the employment and income tax amounts yourself. This is done through estimated payments. These can be submitted quarterly (at a minimum to avoid IRS penalties), or, if it’s easier to remember, monthly.
Individuals with W-2 income from more than one job or with substantial investment income (interest, dividends or stock sales) may need to either adjust their withholding via the W-4 or make estimated payments.