Self-Employment Tax: The Number Most Bakers Don’t See Coming

When you work for an employer, they pay half of your Social Security and Medicare taxes. When you’re self-employed, you pay both halves. This is the self-employment (SE) tax, and it is 15.3% of your net business profit — on top of your regular income tax.

The breakdown:

• Social Security: 12.4% (on profit up to the annual wage base — $168,600 in 2024)
• Medicare: 2.9% (no cap)
• Total: 15.3%

The IRS does allow you to deduct half of your SE tax from your adjusted gross income, which partially offsets the hit — but the 15.3% still comes out first.

Quarterly Estimated Tax Payments

Because no employer is withholding taxes from your income, you pay them directly to the IRS on a quarterly schedule. The IRS calls these “estimated taxes,” but they are not optional — miss them and you owe an underpayment penalty.

The four due dates:

• April 15 — covers January through March income
• June 15 — covers April and May income
• September 15 — covers June through August income
• January 15 (following year) — covers September through December income

If a due date falls on a weekend or holiday, it shifts to the next business day.

How to Calculate Your Quarterly Payment

You have two options:

1. Pay 100% of last year’s tax liability — safe harbor method. If you paid $3,000 in taxes last year, pay $750/quarter this year and you won’t owe a penalty regardless of what you actually earn.
2. Pay 90% of this year’s estimated tax — calculate based on your actual projected income and expenses each quarter.

For bakers in their first year, the safe harbor method is simplest. In later years as your income stabilizes, you can calculate based on actuals.

How to Pay

Pay online at IRS.gov/payments using the Direct Pay system (free) or the Electronic Federal Tax Payment System (EFTPS, also free but requires advance registration). Keep your payment confirmation for your records.