Self-Employment Tax

Financial ServicesWhat 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 or 1040-SR). 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.

https://www.bydfinancial.com/wp-content/uploads/2021/08/Self-Employment-Tax-1.jpg

Self-Employment Tax Rate

The self-employment tax rate is 15.3%. The rate consists of two parts: 12.4% for social security (old-age, survivors, and disability insurance) and 2.9% for Medicare (hospital insurance).

If your wages and tips are subject to either social security tax or the Tier 1 part of railroad retirement tax, or both, and total at least $137,700, do not pay the 12.4% social security part of the SE tax on any of your net earnings. However, you must pay the 2.9% Medicare part of the SE tax on all your net earnings.

An additional Medicare tax rate of 0.9 % applies to wages, compensation, and self-employment income above a threshold amount received in taxable years beginning after Dec. 31, 2012.

If you use a tax year other than the calendar year, you must use the tax rate and maximum earnings limit in effect at the beginning of your tax year. Even if the tax rate or maximum earnings limit changes during your tax year, continue to use the same rate and limit throughout your tax year.

Self-Employment Tax Deduction

You can deduct the employer-equivalent portion 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.

Health Insurance Tax Deduction

Under Section 2042 of the Small Business Jobs Act, a deduction, for income tax purposes, is allowed to self-employed individuals for the cost of health insurance. This deduction is taken into account in calculating net earnings from self-employment.

Financial ServicesWho Must Pay Self-Employment Tax?

You must pay self-employment tax and file Schedule SE (Form 1040 or 1040-SR) 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 Schedule C to figure net earnings from self-employment. If you have earnings subject to self-employment tax, use Schedule SE to figure your net earnings from self-employment. Before you figure your net earnings, you generally need to figure your total earnings subject to self-employment tax.

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.

How to Pay Self-Employment Tax

To pay self-employment tax, you must have a Social Security number (SSN) or an individual taxpayer identification number (ITIN).
Headquarter
3579 S Clement Ave
Milwaukee, WI 53207 USA
OUR LOCATIONWhere to find us?
GET IN TOUCH Follow us on social media
AVANTAGEHeadquarter
Organically grow the holistic world view of disruptive innovation via empowerment.
OUR LOCATIONSWhere to find us?
GET IN TOUCHAvantage Social links
Taking seamless key performance indicators offline to maximise the long tail.

Copyright @ 2021 Beyond Financial . All rights reserved.