| This article addresses some of the key issues | | | | Form 1040, you may deduct up to one-half of |
| regarding self-employment tax. A careful reading | | | | your self-employment tax liability and if you are |
| of this material could make a big difference in | | | | member of the ministry or clergy you may |
| how you think about self-employment tax. | | | | request an exemption from self-employment tax |
| Who must pay self-employment tax and why? | | | | from the IRS. |
| Well, if you're self-employed, you will be | | | | It's really a good idea to probe a little deeper into |
| responsible for self-employment tax. How do you | | | | the subject of self-employment tax. What you |
| determine your liability? For the purpose of | | | | learn may give you the confidence you need to |
| determining self-employment tax, you are | | | | venture into new areas. |
| self-employed if you are a sole proprietor, an | | | | When must self-employment taxes be paid? |
| independent contractor, a member of a | | | | Generally, the self-employment taxes aren't due |
| partnership, or are otherwise in business for | | | | until the end of the year, when your personal tax |
| yourself. If you are a self-employed individual, you | | | | return is filed. Why is it this way? The |
| will have a Schedule C to attach to your Form | | | | self-employment tax isn't due until the end of the |
| 1040, and self-employment tax is computed on | | | | year simply because of the fact that many |
| Form 1040, Schedule SE. Individuals must pay | | | | self-employed business owners don't file the net |
| self-employment tax is they have net earnings of | | | | profit or net loss figures on their self-employment |
| $400 or more and there are several sources of | | | | earnings, until the year's end. If there is a net loss, |
| net earnings that are used when figuring your | | | | the self-employed individual receives a credit of |
| self-employment tax liability. In most cases, net | | | | self-employment tax due, in the amount of |
| earnings include net profit from a farm or | | | | one-half of the amount due. |
| nonfarm business; if you operate more than one | | | | The self-employment tax is the self-employed |
| business, your net earnings from self-employment | | | | individual's equivalent to the social security and |
| are the combined net earnings from all your | | | | Medicare tax deducted from employee's |
| businesses. The upside to operating more than | | | | paycheck each week. The wage earner's taxes |
| one business: If you have a loss in one business, it | | | | are configured by their employer and are |
| reduces the income from another. | | | | deducted on a weekly basis. The self-employed |
| self-employment tax is the self-employed | | | | individual isn't required to make weekly payments |
| individual's contribution to social security and | | | | of self-employment tax, but they are held liable |
| Medicare taxes; the old-age taxes of employment. | | | | for the full 15.3 rate, that is split between the |
| The only difference between the employee and | | | | employee and the employer in wage earning |
| the self-employed is the employee's social security | | | | situations. In general, however, if you expect to |
| and Medicare taxes are paid half by the employee | | | | owe taxes in excess of $1000 for the year, you |
| and half by the employer, when an individual is | | | | are required to pay estimated taxes each quarter. |
| self-employed; he/she is responsible for the entire | | | | In summary, if you are self-employed, have net |
| amount. | | | | earnings of $400 or more, and file a tax return, |
| There are alternative methods that can be used | | | | you will be subject to self-employment tax. To |
| for figuring liability of self-employment tax and | | | | learn more about individual liabilities, exemptions, |
| they are: The Farm Optional Method and the | | | | and alternative tax methods, please visit the online |
| NonFarm Optional Method. These methods may | | | | site for IRS Forms and Publications at . Topic 554, |
| qualify an individual to claim a larger Earned | | | | Publication 517 and 533 will provide more detailed |
| Income Credit or Child Tax Credit; they may also, | | | | and situation specific information. |
| however, increase your self-employment tax | | | | Of course, it's impossible to put everything about |
| liability. | | | | self-employment tax into just one article. But you |
| The maximum amount of earnings subject to | | | | can't deny that you've just added to your |
| self-employment tax is currently $87,000.00. Now, | | | | understanding about self-employment tax, and |
| when figuring your adjusted gross income on | | | | that's time well spent. |