How Much Is Self-Employment Tax in Illinois?
Navigate self-employment tax in Illinois. Discover federal SE tax rules, state income tax application, and essential estimated payment strategies.
Self-employment tax represents the contributions self-employed individuals make towards Social Security and Medicare. These taxes fund benefits like retirement, disability, survivor benefits, and hospital insurance. Unlike traditional employees, self-employed individuals are responsible for calculating and remitting these amounts directly.
Calculating Federal Self-Employment Tax
The federal self-employment tax rate is 15.3% on net earnings from self-employment. This rate is comprised of two distinct components: 12.4% for Social Security and 2.9% for Medicare.
The Social Security portion of the tax applies only up to an annual earnings limit, which is $176,100 for 2025. In contrast, the Medicare portion of 2.9% applies to all net earnings from self-employment, without any income limit. Additionally, high-income earners may be subject to an extra 0.9% Additional Medicare Tax on earnings exceeding certain thresholds. For 2025, these thresholds are $200,000 for single filers and $250,000 for those married filing jointly.
To determine the amount subject to self-employment tax, individuals first calculate their “net earnings from self-employment.” This figure is generally derived by subtracting allowable business expenses from gross income. For tax purposes, only 92.35% of these net earnings are considered subject to self-employment tax. This adjustment accounts for the employer-equivalent portion of the tax.
Self-employed individuals can deduct one-half of their self-employment tax when calculating their adjusted gross income (AGI) for federal income tax purposes. This deduction effectively lowers their overall federal income tax liability.
The primary federal forms involved in reporting self-employment income and calculating this tax are Schedule C (Profit or Loss from Business) for income and expenses, and Schedule SE (Self-Employment Tax) for calculating the self-employment tax itself. The net profit from Schedule C is a key input for calculating the tax on Schedule SE.
Illinois State Income Tax on Self-Employment Earnings
Illinois does not impose a separate state-level self-employment tax. Instead, self-employment income earned by residents of Illinois is subject to the standard Illinois individual income tax rate. For individuals, Illinois applies a flat income tax rate of 4.95% on net income.
The net self-employment earnings, as determined for federal tax purposes on Schedule C, flow through to the Illinois state income tax return, Form IL-1040. This income is then taxed at the state’s flat rate. While there is no specific self-employment tax at the state level, self-employed individuals in Illinois may still be able to reduce their state income tax liability through common deductions, exemptions, or credits.
Making Estimated Tax Payments
Self-employed individuals are generally required to make estimated tax payments throughout the year because income is not subject to employer withholding. These payments cover both federal self-employment tax, federal income tax, and Illinois state income tax.
The tax year is divided into four payment periods, each with specific due dates. For federal and Illinois estimated taxes, these dates are typically April 15, June 15, September 15, and January 15 of the following year.
Calculating the amount for each estimated payment involves projecting annual income and deductions to estimate the total tax liability. This estimated amount is then typically divided into four equal installments.
Federal estimated tax payments can be made through various methods, including IRS Direct Pay, the Electronic Federal Tax Payment System (EFTPS), or by mail with Form 1040-ES payment vouchers. For Illinois estimated taxes, payments can be submitted electronically through MyTax Illinois or by mail using Form IL-1040-ES payment vouchers.
Pay enough tax by each due date to avoid potential penalties for underpayment. The IRS provides “safe harbor” rules, generally requiring payment of at least 90% of the current year’s tax or 100% of the prior year’s tax (110% for high-income taxpayers).