Missouri Self-Employment Tax Requirements

Self-employed individuals in Missouri are subject to a specific set of tax obligations that extend beyond standard income tax. This system requires an understanding of federal self-employment taxes, which fund Social Security and Medicare, and how these federal requirements interact with state and local tax filings. While the primary self-employment tax is a federal mandate, its calculation and payment have direct consequences for a business owner’s Missouri state tax liability. Navigating these requirements involves calculating the federal tax, understanding its effect on state returns, making timely estimated payments, and addressing any applicable local earnings taxes.

Calculating Federal Self-Employment Tax

The federal self-employment tax applies to individuals who generate net earnings of $400 or more from their business activities. It is composed of a 12.4% Social Security tax and a 2.9% Medicare tax, for a total rate of 15.3%. These are analogous to the FICA taxes withheld from an employee’s paycheck, but a self-employed person is responsible for paying both the employee and employer portions.

The calculation process starts with the net profit from your business, figured on Schedule C of your federal tax return. However, the full net profit is not subject to the tax. You first multiply your net profit by 92.35% to determine your “net earnings from self-employment.” This adjustment accounts for the deductible portion of the self-employment tax, placing self-employed individuals on more equal footing with regular employees.

Once you have the adjusted net earnings figure, you apply the two tax rates. The 12.4% Social Security tax applies only up to an annual income limit, which for 2024 is $168,600. Any net earnings above this threshold are not subject to the Social Security component. The 2.9% Medicare tax applies to all of your net earnings from self-employment with no income cap. All calculations are performed and reported on federal Form 1040, Schedule SE.

For example, if a self-employed individual has a net profit of $60,000, the first step is to find the taxable portion by multiplying $60,000 by 92.35%, resulting in $55,410 of net earnings from self-employment. Since this amount is below the 2024 Social Security wage base, the entire $55,410 is subject to both taxes. The Social Security tax would be $6,870.84 (12.4% of $55,410), and the Medicare tax would be $1,606.89 (2.9% of $55,410), for a total self-employment tax of $8,477.73.

The Missouri State Tax Connection

A common point of confusion is how the federal self-employment tax relates to Missouri state taxes. Missouri does not impose its own, separate self-employment tax, as the tax calculated on Schedule SE is exclusively federal. The connection to Missouri taxes is indirect, stemming from a deduction on your federal return that lowers your state taxable income.

When you file your federal income tax return, you are allowed to deduct one-half of your total self-employment tax liability. This is an “above-the-line” deduction, meaning you can take it even if you do not itemize, and it reduces your federal Adjusted Gross Income (AGI).

The calculation for Missouri state income tax begins with your federal AGI. By lowering your federal AGI, the deduction for one-half of your self-employment tax directly reduces the starting income figure on your Missouri Form MO-1040. This, in turn, lowers the amount of income subject to Missouri’s income tax rates, lessening your overall state income tax burden.

Paying Estimated Taxes

Because self-employed individuals do not have taxes withheld from their paychecks, they are required to pay their tax liability throughout the year in estimated tax payments. This pay-as-you-go system applies to both federal and state taxes, covering your federal self-employment tax and your federal and Missouri state income taxes. You must make estimated tax payments if you expect to owe at least $1,000 in federal tax and $100 in Missouri tax for the year.

Payments are divided into four quarterly installments with due dates around April 15, June 15, September 15, and January 15 of the following year. Missouri’s due dates align with this federal schedule. You must make payments to two separate government bodies: the Internal Revenue Service (IRS) for your federal liability and the Missouri Department of Revenue for your state liability.

For federal payments, you can use IRS Direct Pay online, the Electronic Federal Tax Payment System (EFTPS), or mail a check with a payment voucher from Form 1040-ES, Estimated Tax for Individuals. The Missouri Department of Revenue offers an online portal for payments or allows you to mail a check with a state-specific payment voucher from Form MO-1040ES, Declaration of Estimated Tax for Individuals. Failing to pay enough tax by these quarterly deadlines can result in underpayment penalties.

Missouri Local Earnings Taxes

Beyond federal and state obligations, some self-employed individuals in Missouri may also be subject to local earnings taxes. Kansas City and the City of St. Louis levy their own earnings tax, which is applied to the net profits of businesses and self-employed individuals operating within their jurisdictions. This tax is a separate and distinct liability from federal self-employment tax and state income tax.

The earnings tax rate in both Kansas City and St. Louis is 1% of net profits. All residents of these cities are required to pay the tax, even if their work is performed outside the city limits. Nonresidents who perform work or services within the city limits are also subject to the tax on the income earned there.

This tax has its own set of rules, forms, and payment procedures that are completely independent of the IRS and the Missouri Department of Revenue. For those in St. Louis, the tax is reported using Form E-234. In Kansas City, self-employed individuals use Form RD-108 or RD-109 to report and pay their earnings tax.