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News & Press: Tax Center

Self-Employment /Social Security Tax

Wednesday, May 21, 2014   (0 Comments)
Posted by: Rhette Baughman
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What is Self-Employment Tax?

 

Self-employment tax is a tax consisting of Social Security and Medicare taxes primarily for individuals who work for themselves. It is similar to the Social Security and Medicare taxes withheld from the pay of most wage earners.

You figure self-employment tax (SE tax) yourself using Schedule SE (Form 1040). Social Security and Medicare taxes of most wage earners are figured by their employers. Also you can deduct the employer-equivalent portion of your SE tax in figuring your adjusted gross income. Wage earners cannot deduct Social Security and Medicare taxes.

Who Must Pay Self-Employment Tax?

You must pay self-employment tax and file Schedule SE (Form 1040), Self-Employment Tax and Form 1040 Schedule SE Instructions if either of the following applies.

  • Your net earnings from self-employment (excluding church employee income) were $400 or more.
  • You had church employee income of $108.28 or more.

Generally, your net earnings from self-employment are subject to self-employment tax.  If you are self-employed as a sole proprietor or independent contractor, you generally use 1040 Schedule C or C-EZ to figure net earnings from self-employment. Net earnings are your gross or total earnings minus your business expenses.  

Note:  The self-employment tax rules apply no matter how old you are and even if you are already receiving Social Security or Medicare.

 

Family Caregivers and Self-Employment Tax

Special rules apply to workers who perform in-home services for elderly or disabled individuals (caregivers). Caregivers are typically employees of the individuals for whom they provide services because they work in the homes of the elderly or disabled individuals and these individuals have the right to tell the caregivers what needs to be done. See the Family Caregivers and Self-Employment Tax page and Publication 926 for more details.

 

How Do I Pay  Self-Employment Tax

Pay the tax when you file your tax return or through Estimated Tax. Estimated tax is the method used to pay tax on income that is not subject to withholding. This includes income from self-employment. If you do not pay enough through withholding or estimated tax payments, you may be charged a penalty. See Form 1040-ES, Estimated Tax for Individuals to figure and pay your estimated tax. See Publication 505, Tax Withholding and Estimated Tax  for additional information on Estimated Taxes.

Self-Employment Tax Rate and Deduction

The maximum earnings subject to Self- Employment Tax in 2014 is $117,000.  The current Self-Employment Tax rate remains at 15.3%.

You can deduct the employer-equivalent portion or 1/2 of your self-employment tax in figuring your adjusted gross income. This deduction only affects your income tax. It does not affect either your net earnings from self-employment or your self-employment tax.

 

Alert: Social Security Policy Change

  • After 8/01/14, the Social Security Administration will not issue Social Security Number printouts
  • After 10/01/14, the Social Security Administration benefit verification letters will only be available online or by phone.

 

See SSA Publication 05-10544 Important Information: Changes in Certain Services (English and Spanish) for more information.


References/Related Topics 

Self Employed Individual Tax Center

This series is brought to you by the Southwest Area Stakeholder Liaison Team covering ArizonaNew Mexico & Texas. It is designed for you to share with anyone who will find the information useful. We are interested to hear if you think this information is helpful. Please provide your feedback or topic request to us at sl.southwest@irs.gov and include “Workshop Wednesdayin the subject line.

To access previous editions, click here:

Workshop Wednesday Archive links


Small business owners, especially new sole proprietors, can find a wealth of information covering their federal tax responsibilities on www.IRS.gov. The SB/SE Tax Center (http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Small-Business-and-Self-Employed-Tax-Center-1)  is the “Go To” IRS.gov page for everything small business.


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