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Understanding Self-Employment Tax

Understanding Self-Employment Tax

If you plan on working as a self-employed professional, there are tax implications to consider. Before you take this step, it is important to understand the ins and outs of self-employment tax. This means answering three questions:

•    What is self-employment tax?
•    Who is required to pay self-employment tax?
•    How do you pay self-employment tax?

First and foremost, self-employment tax consists of Medicare and Social Security taxes. This is similar to the Medicare and Social Security taxes that are withheld from your pay as a traditional employee.

Secondly, the IRS states that you must pay self-employment tax if either of the following applies to your situation:

•    Your net earnings from self-employment were $400 or more.
•    You received church employee income of $108.28 or more.

If you find yourself in either situation, you are required to file Schedule SE (Form 1040) with the IRS.

While it may sound confusing to pay self-employment tax, this is not the case. As long as you have a Social Security number (SSN) or an individual taxpayer identification number (ITIN), this is simple to do.
Most self-employed professionals pay estimated quarterly taxes. If you need help deciding how much to pay, consult with a tax professional.

At first, it may be confusing to pay self-employment tax. Once you are on the right track, once you make a few payments, everything will come together. Soon enough, you will know what is expected of you and how to ensure that you are paying all the taxes you owe. 

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Comments 2

Frank on Tuesday, 29 September 2015 09:28

Great information Chris, and this ties very well with what you previously had written on self employment. If anyone is interested, please check out the article.

https://www.financeglobe.com/blogs/latest-blogs/is-self-employment-the-right-choice-answer-these-questions

Great information Chris, and this ties very well with what you previously had written on self employment. If anyone is interested, please check out the article. https://www.financeglobe.com/blogs/latest-blogs/is-self-employment-the-right-choice-answer-these-questions
Wanderer on Wednesday, 30 September 2015 19:24

Great information. Need to add, the Internal Revenue Service will place liens for unpaid taxes so keep this one at the top of the payment pile. New businesses seem to not understand (during the first three years) that this is a number one payment.

Great information. Need to add, the Internal Revenue Service will place liens for unpaid taxes so keep this one at the top of the payment pile. New businesses seem to not understand (during the first three years) that this is a number one payment.
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