The first thing to note when it comes to self-employed tax, SE tax, is that it only refers to Medicare taxes and Social Security benefits. Self-employed persons may be required to file other federal taxes based on the area they work in. Below you will find information into what is self-employment tax, who is required to pay it and how to go about paying this tax. The information below may not include everything you need to know; therefore, it should not be taken as all-inclusive because your specific business may need additional information.
SE tax, as was mentioned before, is a tax that individuals working for themselves must pay. This specific tax only includes Medicare taxes and Social Security benefits similar to those withheld from employed individuals paychecks.
To determine the amount of SE tax you must pay, use Schedule SE (Form 1040). While Medicare and Social Security taxes are determined by an employed individual’s employer, self-employed individuals can deduct the employer-equivalent portion from the total SE tax you are expected to pay based on the amount of money you earn.
Self-employed persons with a net income below $118,500 must pay a federal income tax of 15.3% for the 2015 tax year. This 15.3% is divided into parts where 12.4 percent goes to Social Security tax (disability insurance, old-age, and survivor benefits); the other 2.9 percent is for Medicare/hospital insurance.
Self-employed persons are allowed to deduct the employer-equivalent portion from their SE tax to determine the amount of your adjusted gross income. The deduction will only affect your income and not your net earnings from SE tax or self-employment itself.
Earned Income Tax Credit, EITC is available to eligible individuals who file Schedule C Form 1040.
SE tax health insurance tax deduction
Self-employed individuals receive a deduction under the Section 2042 of the Small Business Jobs Act for the cost of health insurance. The amount of deductions you are allowed is based on your net earnings as a self-employed individual.
All self-employed individuals must pay SE tax if they fall under any of the following categories:
● You worked for a church or other church organization that is exempted from taxes, but earned an income of $108.28 or more.
● Your combined net earnings for the tax year ending were $400 or more.
Self-employed individuals who work as an independent contractor or sole proprietor are required to file Schedule C or C-EZ to determine their net earnings.
On the other hand, Schedule SE must be used to determine earnings subjected to self-employment tax from self-employment. You must keep in mind that self-employment tax rules are for all self-employed individuals, no matter how old or young you are. These rules are also still in effect even if you are receiving Medicare and Social Security benefits.
There are special rules in place for caregivers who provide in-home services for disabled persons or the elderly. Because caregivers are considered the employees of the person they care for, the elderly or disabled individual, different rules apply where their taxes are concerned.
If the employee (the caregiver) is related to the employer (the person they are caring for), the employer does not need to pay employment taxes; however, the earnings of the employee must be reported on a form W-2 by the employer.
Only individuals with an Individual Taxpayer Number (ITIN) or Social Security Number, SSN can pay self-employment tax. If you do not have any of these numbers, learn how to obtain one below.
Self-employed individuals who never had a SSN can apply for one using Form SS-5, Application for a Social Security Card. To complete this form, visit a Social Security office close to you or download and complete the form from the Social Security website.
This number is issued by the IRS to both resident and nonresident aliens who don’t have a Social Security Number. ITIN are also given to those individuals who don’t qualify for a social security number as well. To apply for your ITIN, complete Form W-7, Application for IRS Individual Taxpayer Identification Number.
.
Along with paying SE taxes, self-employed individuals may have to pay estimated taxes on a quarterly basis. If you are required to pay estimated taxes, this will be your form of SE tax and once you pay this, you don’t need to pay another SE tax.
All self-employed individuals meeting the above requirements must pay their SE tax at the end of each tax year. Understanding the full details and intricacies of the taxes you must pay can be a little difficult; therefore, it is good to have a tax guy on your side. If you are looking for a Miami tax preparer, contact East West Accounting Services, LLC for professional advice and services.
East West Accounting Services LLC
|
|
