If you freelance or run a business in Alabama, you owe two layers of tax on the same profit: the federal self-employment tax that funds Social Security and Medicare, and Alabama’s state income tax. This calculator computes both and totals them so you can set aside the right amount.
How it works
The federal self-employment tax is calculated on Schedule SE. First, net earnings are multiplied by 92.35 percent:
SE base = net earnings × 0.9235
SE tax = 12.4% × min(SE base, 168,600) + 2.9% × SE base + 0.9% × (above threshold)The 12.4 percent Social Security portion stops at the annual wage base; the 2.9 percent Medicare portion has no cap; and an extra 0.9 percent applies to high earners. One half of the SE tax is then deductible. Alabama income tax is applied to your net income after subtracting that half-SE deduction, the standard deduction, and your personal exemption, using the 2 / 4 / 5 percent brackets.
Example
On 80,000 dollars of net profit, the SE base is 73,880 dollars. SE tax is 12.4% of 73,880 (9,161) plus 2.9% of 73,880 (2,143), totaling about 11,304 dollars. Half of that, roughly 5,652 dollars, is deductible before Alabama’s tax applies to the remainder.
Notes
This estimate excludes your regular federal income tax, which is calculated separately on Form 1040. Quarterly estimated payments to both the IRS and the Alabama Department of Revenue are usually required for the self-employed. Always confirm current wage bases and brackets at irs.gov and revenue.alabama.gov.