Self-employed individuals generally must pay self-employment (SE) tax as well as income tax. The SE tax is a Social Security and Medicare tax that is primarily intended for people who are self-employed. It's similar to Social Security and Medicare taxes, which are withheld from the pay of most wage earners. Generally, you must withhold and deposit income taxes, social security taxes, and Medicare taxes from the salary paid to an employee.
In addition, you must also pay the employer the corresponding share of Social Security and Medicare taxes, as well as pay unemployment tax on wages paid to an employee. You generally don't have to withhold or pay any taxes on payments to independent contractors. The term self-employment tax refers to the taxes that self-employed individuals and small business owners pay to the federal government to fund Medicare and Social Security. Self-employed people, including the self-employed, should consider their taxes when setting their prices, take into account their tax burden when planning their finances for the year (for example, the Get It Back campaign) helps people who qualify to apply for tax credits and use free tax filing assistance to make the most of their time paying taxes.
Once your total net earnings from self-employment are taxable, apply the 15.3% tax rate to determine your total self-employment tax. While the tax applies to the taxpayer's business profits, the IRS allows the employer to count half of the self-employment tax, or 7.65% (calculated as half of 15.3%), as a business deduction for the purpose of calculating that taxpayer's income tax. To prepare to file your taxes, you must first understand your tax rate, as well as the state and local taxes that may apply to you. Before you can determine your tax obligations, know your tax rate and consider if your region requires separate municipal taxes.
If, after reviewing all three categories of evidence, it is still unclear whether a worker is an employee or an independent contractor, you can file Form SS-8, Determination of Worker Status for the purposes of federal employment taxes and income tax withholding (PDF), with the IRS. If you're not required to file taxes but have been withholding taxes all year long, you can get that money back when you file your tax return. Excise taxes include additional taxes on qualifying retirement plans or when you must pay taxes on tips that you didn't report to your employer. If you expect to make quarterly estimated tax payments, use Form 1040-ES, Estimated Tax for Individuals, which contains a worksheet similar to Form 1040.
The self-employment tax is designed to be collected from workers who consider themselves self-employed and who, otherwise, do not pay withholding taxes at source. When properly leveraged, those additional tax benefits can offset the increase in the self-employment tax and lead to a lower total effective tax rate. If you're not sure if you've withheld taxes or if you qualify for tax credits, you can file a tax return anyway so you don't miss out. As such, the IRS requires taxpayers to make quarterly estimated tax payments to cover their self-employment tax liability, in addition to their federal and state tax liability.
The self-employment tax is similar to the Federal Insurance Contributions Act (FICA) tax paid by employers...