How to File Self-Employment Taxes

SECA tax, or Self-Employment Contributions Act tax, is the self-employed individuals' contribution to Social Security and Medicare. When a person has an employer, the employer handles these taxes during payroll. The employer pays half of the Social Security and Medicare tax, only they call it FICA, and the employee pays the other half. Unfortunately, self-employed individuals are stuck paying the entire bill themselves. How do they file self-employment taxes?

Difficulty: Moderate

Instructions

Things You'll Need:

• Schedule SE Schedule C (profit or loss from business) Schedule F (farmers) Schedule K-1 (partnerships) Name (same as on 1040) SSN or ITIN Form 4797 (sales of business property) 1040-ES (estimated tax for individuals) Form 1120-W (estimated tax for corporations) Increase withholding on W-4 if employed

1. Print the PDF file for form 1040-ES Estimated Tax for Individuals, Form 1120-W Estimated Tax for Corporations, or request these forms directly from the IRS to make estimated quarterly payments of self-employment taxes throughout the fiscal year. This is necessary if you will owe the government more than $1000 when you file your taxes to avoid penalties. If you will not owe that much, you may skip this step.

2. Request Schedule C if your self-employment activity is from Business, Schedule F if it is for Farming, or K-1 if it is a partnership. Fill in the lines on your schedule, listing your earnings by source and your expenses by category. Schedule C also has a section for Cost of Goods Sold if applicable. Calculate your net income or loss.

3. Fill in your net income on Schedule SE line 1, if the net income number came from Schedule F or Schedule K-1 and was earned from farming activity. Fill in your net income on line 2 if the net income is from Schedule C or Schedule K-1 and was earned from non-farm activity.

4. Multiply your net earnings from self-employment times 92.35 percent or .9235. If the number you arrive at is less than $400 you do not need to complete the form; you owe no tax. Otherwise, multiply the number times the current SECA tax rate. For example, if the number is $10,000 and the current SECA rate is 15.3 percent, the total self-employment tax owed is $1,530. Enter this amount on your 1040 tax form beside self-employment tax in the "Other Taxes" section. Attach form SE to your prepared tax forms when complete. There is a cap to consider, however. If you made over $97,000, you may not pay self-employment tax on the amount over that cap.

5. Multiply your self-employment tax owed by 50 percent. In our example, our tax was $1,530 and 50 percent of that is $765. Enter this amount on your 1040 in the "Adjusted Gross Income" section under one-half self-employment tax. You will be allowed to reduce your adjusted gross income by this amount.

6. Staple all of your forms together and submit to the IRS prior to midnight of April 15. Attach a check for any amount owed.

Tips & Warnings

• Increase the federal tax-withholding amount from your paycheck if you have an employer besides being self-employed. If you have a job this is the simplest method of paying your self-employment tax. As long as you owe less than $1,000 at the end of the year, you will owe no penalties.
• You may owe penalties to the IRS if you fail to make estimated payments quarterly throughout the year and owe over $1,000.

Resources

• IRS 1040 Self-Employment Tax
• The Self-Employment Tax--Wachovia Corporation
• Paying Estimated Taxes--IRS

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