What Is Self-Employment for Tax Purposes?

Self-employment is income derived from working that has not been subject to Social Security tax withholding.

The Internal Revenue Service recognizes that determining self-employment for tax purposes is different on a case-by-case basis. If Social Security has been withheld from your income, you are considered an employee. If no Social Security income has been withheld, you are self-employed for tax purposes.

The W-2 Tax and Wage Statement

One of the easiest ways to determine if you are self-employed is by recognizing what type of income you receive. W-2s are the most common form of wage reporting by business and individuals, and the W-2 report shows that Social Security has been withheld from the employee's income. If an individual has more than one source of income, the income that is reported on the W-2 will be subtracted from any income received from other sources.

1099 Forms

The 1099 forms are normally used for reporting nonemployee compensation and can be a factor in determining whether an individual is self-employed. If a business or private entity issues you a 1099, you are self-employed and will need to fill out a Schedule C or other similar form to report the income. You will also be able to deduct legitimate expenses and will pay any self-employment tax that is due.

Other Income Sources

If you receive money from a personal business, you are self-employed. For example, if you list and sell several items online, and you package and ship the items to the winning bidders, this is considered self-employment. You will be able to file a Schedule C, listing all income and subtracting the expenses--such as listing fees and mailing expenses and the cost of the item your bought to resell--to determine your self-employment income.

References

• Internal Revenue Service: Independent Contractor (Self-Employed) or Employee?
• Internal Revenue Service: Who Is Considered Self-Employed?