Self Employment Tax Guidelines
The self-employment tax replaces the FICA withholding on an employer paycheck. In 2010, this tax is 15.3 percent of income for Social Security and 2.9 percent of income for Medicare. If your annual self-employment income exceeds $106,800, the Social Security portion of the tax is waived. Self-employed individuals pay this tax along with business taxes if they meet certain income requirements.
Other People Are Reading
-
Income Requirement
-
In 2010, you are required to pay the self-employment tax if you had net self-employed income greater than $400 for the year, or church employee income greater than $108.28. Self-employment income includes all income earned as a sole proprietor, independent contractor or partner--any income you earn from your own business ventures. You must pay the self-employment tax even if most of your income comes from other sources or you are eligible for Social Security and Medicare benefits.
Filing
-
Calculate the self-employment tax on IRS Schedule SE on form 1040. If you expect to owe more than $1,000 in self-employment and other taxes at year end, you will also calculate this amount as part of the form 1040-ES for estimated tax payments. Estimated tax payments are due on a quarterly basis. Assuming a fiscal year equal to a calendar year, filing deadlines are the 15th of April, July, October and January each year. A final tax accounting is due on April 15 following the year end.
-
Deductions
-
The IRS allows two deductions on form 1040 to offset the cost of the self-employment tax. Net self-employment earnings are reduced by half of the total Social Security tax you have paid. That same amount can be deducted from gross earnings as an adjustment on form 1040.
Penalties
-
If you are eligible to pay the self-employment tax but do not make payments, you may be penalized. In addition, the IRS may levy penalties if you do not pay enough estimated tax during the year. See IRS Publication 505 for specific information on when to pay estimated tax.
-
