What Income Is Subject to Self-Employment Tax?

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Self-employment tax is paid to the Internal Revenue Service to meet your social security and Medicare tax requirements. This tax is similar to the social security and Medicare taxes that are withheld from payroll checks. If you are self-employed, you are required to pay these taxes each year.

Qualifying Income

  • In general, if you have earned $400 or more from self-employment, you are required to pay self-employment taxes. Additionally, if you earned more than $108.28 as an employee of a church or other exempt organization, or if you have earned income while working for a foreign government while maintaining your U.S. citizenship, you are required to pay self-employment taxes. This also applies if you are a U.S. citizen who lives outside the country.

Additional Income

  • There are additional sources of income that require payment of self-employment taxes. If you have rented a farm that generated rental income, the rental income is considered farm earnings that are subject to self-employment tax. Land diversion programs that result in cash or other forms of payment from the Department of Agriculture are also subject to the requirement. Boarding houses, bed and breakfast sites, parking lots and other rental spaces in which you receive payment and provide "substantial services for the convenience" require self-employment tax. Self-employment tax is also required for earnings resulting from newspaper, magazine and other direct-seller products in which you get to keep the profit; fee-based contracts; business interests received; and corporate and professional fiduciary fees.

Income Not Included

  • Self-employment tax is not required on income that has already been subjected to social security and Medicare tax. These income types include salaries, fees and public official services. Notary public fees, retirement income, private real estate income and farm rentals in which you did not participate in production are not subject to self-employment taxes. Gains and losses resulting from the sale or exchange of capital assets are exempt from self-employment tax, as are insurance salesperson termination payments and all payments received from the Conservation Reserve Program.

Who Is Self-Employed

  • The Internal Revenue Service considers you to be self-employed if you carry complete trades or business as a sole proprietor or independent contractor, are a member of a partnership or are "otherwise in business for yourself." You can be deemed to be self-employed even if you hold another full-time or part-time position.

How to Pay the Tax

  • Self-employment taxes must be paid each year. However, if you are self-employed and expect to owe at least $1,000 in self-employment tax at the end of the year, you must pay quarterly estimated taxes. If you fail to make quarterly tax payments and have underpaid by the end of the year, you may be subject to IRS penalties and fines. You must have a valid social security number or individual taxpayer identification number (ITIN) when paying your taxes.

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