Understanding how the Florida self-employment tax works for small and midsize business (SMB) owners in the state is one of the many considerations to take into account when opening a new business. The good news for entrepreneurs in Florida is that favorable tax laws make the Sunshine State an appealing place to launch a business or supplement your income with a side hustle.
Because the state of Florida doesn’t have a self-employment tax, small and medium-sized business owners only pay self-employment taxes to the IRS. Any worker who earns more than $400 in the tax year but doesn’t pay withholding taxes via an employer must pay the federal self-employment tax.
Florida Businesses Pay Federal Self-Employment Tax
158,088 new businesses formed in Florida in 2023, more than in any other state. This boom can be partly attributed to the attractive fiscal policies the state offers.
While entrepreneurs in many states must pay additional self-employment taxes, the state of Florida doesn’t have a self-employment tax. Indeed, small business owners who opt to make their business structure an S corporation, limited liability company, partnership, or sole proprietorship don’t pay any income tax to the state of Florida and are only subject to federal income taxes. Because individuals don’t pay income tax to the state, any income that passes through the small business to the individual is only subject to federal income tax rates.
Whether you’re an independent contractor, a freelancer, or have set up your own small business, an accountant at a Florida CPA firm can walk you through the process of calculating and paying self-employment tax to the IRS. They can also explain S corp vs C corp tax advantages and other factors that can affect your tax return.
What Do Self-Employment Taxes Cover?
Self-employment taxes paid to the federal government fund Medicare and Social Security. When self-employment income reaches $400 or more over the tax year, self-employed workers must pay self-employment tax.
Apart from being a tax obligation faced by all independent workers, self-employed workers get access to Social Security benefits during retirement by paying self-employment taxes throughout their working lives.
How to Calculate Your Self-Employment Tax Obligation
Social Security tax for salaried employees is assessed at 6.2% for the employer and 6.2% for the employee. However, because self-employed workers are both the employer and the employee, they’re liable for the full amount. The self-employment tax rate therefore stands at 12.4%. Add the 2.9% Medicare tax and the total self-employment tax (including Social Security and Medicare taxes) comes to 15.3%.
Tip: It can help to use a self-employment tax calculator to help you work out how much self-employment tax you need to pay. Self-employment tax calculators are readily available online.
Self-Employment Tax Threshold Amounts
The Social Security tax applied to the first $160,200 of self-employment income for 2023. This amount is rising to $168,600 in 2024.
Medicare taxes stand at a rate of 2.9%; you are liable to pay this on all your combined wages, tips, and net earnings with no income limit.
How Your Filing Status Affects the Threshold Amount
You will be required to pay an additional 0.9% Medicare tax if your wages, compensation, or self-employment income—together with your spouse’s if you file a joint return—are above the threshold amount for your filing status:
|Married filing jointly
|Married filing separate
|Head of household (with qualifying person)
|Qualifying surviving spouse with dependent child
Source: IRS https://www.irs.gov/businesses/small-businesses-self-employed/self-employment-tax-social-security-and-medicare-taxes
Consult Your CPA about Self-Employment Tax Deductions
You can claim a self-employment tax deduction on half of the amount you pay in self-employment tax. The IRS allows the “employer” half of your tax contributions—or 7.65%—to be claimed as a business deduction when you calculate your adjusted gross income (AGI).
How to Pay Your Self-Employment Taxes
Use Schedule C to calculate your net earnings. Schedule SE is used to calculate your self-employment tax liability and should be filed together with your federal income tax form (Form 1040).
Other Federal and Florida Taxes for SMB Employers
Florida has a reputation for being a business-friendly state, with good reason. Indeed, WalletHub rated Florida as the second-best state in which to start a business and the fourth fastest-growing state for small businesses in 2023. Know which taxes your small business needs to pay and which ones you can skip.
S corps, LLCs, partnerships, and sole proprietorships are generally exempt from state income tax in Florida. However, each owner or member must still pay federal income tax based on the passed-through business income they receive.
Certain corporations, associations, and companies doing business in Florida must pay the 5.5% corporate income/franchise tax on the Florida-related portion of their federal taxable income. For 2023, the first $50,000 of companies’ Florida-related net income is exempt from corporate taxes in Florida.
Most sales, admissions, rentals, and storage services in Florida are subject to sales tax. The standard sales tax rate is 6%, but there are some exceptions:
- Electricity: 6.95%
- Rental, lease, or license to use commercial real estate: 4.5%
- Amusement machine receipts: 4%
- Sales of new mobile homes: 3%
Additionally, there is a county-based discretionary sales surtax. Businesses must collect both the county-based and state sales tax amounts from the buyer at the time of purchase and remit these taxes to the Florida Department of Revenue.
A Florida CPA Can Help
For small and medium-sized businesses, every dollar counts. Optimizing your self-employment taxes allows you to improve your bottom line while providing for your future.
Many SMB owners benefit from hiring an accountant who understands the intricacies of the tax system and how it can work for them. A Florida CPA can help you calculate and fulfill your self-employment (and business) tax obligations correctly and make sure you don’t pay any more than you should.