If you’ve recently become self-employed, you may want to consider what tax implications this will have for you. For individuals who work for themselves, one of the most important things to know about is self-employment tax.
What Is Self-Employment Tax?
Self-employment tax is based on a taxpayer’s net profits from self-employment. It consists of Social Security and Medicare taxes and is similar to the Social Security and Medicare taxes that are normally withheld by employers. Taxpayers need to utilize Schedule SE (Form 1040) to figure their self-employment tax.
Who Has to Pay Self-Employment Tax?
While you might think self-employment tax applies to everyone who is self-employed, that’s not actually accurate. You only need to pay self-employment tax if, in a given tax year:
- Your net earnings from self-employment, excluding church employee income, were $400 or more.
- You had church employee income of $108.28 or more.
If you made less than this from self-employment, then the IRS will not require you to pay self-employment tax. However, make sure you calculate this carefully, as not paying self-employment tax when you should could result in penalties.
If you have questions about self-employment tax, turn to the pros at Taxation Solutions, Inc. We’re here to solve all of your tax problems!