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The Self-Employment Tax Explained


The self employment tax (SE) is the social security and medicare wages individuals who work for themselves must pay. Those who work for another company have these wages automatically deducted from their paycheck each time the employer pays them.


What is the Self Employment Tax Rate?


The current self employment tax is 15.3%. Of the 15.3%, 12.4% goes to social security, and 2.9% goes to medicare. Only the first $102,000 is subject to 12.4% social security, but all earnings are subject to the 2.9% medicare. This rate applies to net income.


If the business tax year does not use the calendar year for tax purposes, all individuals should use the rate at the beginning of the year.


For the adjusted gross income of the individual who is paying this tax, one half of the tax may be deducted. It will not affect the amount paid in SE taxes.


Self Employment Deductions


Deductions from business income for freelancers include business expenses such as:


  • fees to receive online payments through PayPal
  • subscriptions to any freelance job networks
  • website expenses
  • advertising and marketing expenses
  • fuel expense to meet clients


Consulting a tax professional will help ensure all possible tax deductions are found.

How to Pay Self Employment Tax


In order to pay the self employment tax, individuals need either a social security number (SSN) or an individual taxpayer identification number (ITIN).


An SSN is issued to American citizens at birth. For anyone who does not have one, there is an online application. Visit the local Social Security Administration to receive a paper application. If an individual does not have or otherwise is ineligible to receive an SSN, the IRS will issue an ITIN.


Making Estimated Self Employment Tax Payments


Since employees make withholding payments from every paycheck, self employed individuals are expected to make quarterly tax payments with an estimated amount. At the end of the year when it is time to file for the entire year, these payments will be considered in tallying the total tax or refund due.


Make payments every three months using the Electronic Federal Tax Payment System (EFTPS). Payments should be made by April 15th, June 15th, September 15 and January 15th.


Who Pays the Self Employment Tax


An individual who earns more than $400 income from any other job other than a church organization must pay the tax. Church workers who earn more than $108.28 must also pay the tax.


Who is Considered Self Employed?


Individuals are self employed if they are a sole proprietor or otherwise work as an Independent Contractor for another business. If they are part of a partnership that conducts business, they are also considered self employed. If an individual is somehow in business working for themselves, she is also considered self employed.


Independent contractors receive 1099 forms from clients at the end of the year rather than W-2 forms. W-2's show withholding amounts, and 1099's do not, because no income is withheld from an independent contractor for tax purposes. Individuals who receive W-2 forms are not considered self employed, unless they have another source of income--such as income from a church.


Self employed individuals should always report all income to the IRS regardless of whether or not a 1099 is received. Keep all receipts and records for verification of deductions and credits in the event of an audit.

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