Do I Have to Pay SE Tax?
Self-employed individuals have more forms to look at than just the 1040. All those forms can be daunting and start to look the same. Before you start pulling out your hair, find out if you are subject to pay any self-employment taxes.
The self-employment tax applies to individuals who have been deemed “self-employed” according to the IRS. Self-employment is determined by the ownership of the business or trade that you engage in. When the decision about how to direct the method of providing those goods and services rests with you, then you are self-employed. Freelancers and independent contractors are considered to be self-employed as well.
The business enterprise can be home based or run in an office building downtown. It can be conducted completely on the Internet or from your garage. The location doesn’t matter. The government looks at the amount of profit that is received.
As a self-employed person, if the business earns $400 or more during the previous year, that money is subject to the self-employment (SE) tax. Church employees who earned more than $108 and didn’t receive a W-2 form are subject to self-employment tax. The W-2 form shows what taxes are deducted from your pay by an employer. Without it, you are an independent contractor and are classified as self-employed.
Now, the money that you make will have deductions and exemptions that apply just like people without businesses. Anything that factors in to lower your taxable income will lower the tax bill at the end of the year. People who have an idea that they will owe more than $1,000 in taxes can pay their taxes throughout the year on an estimated basis.
In addition to the 1040 form, self-employed individuals fill out a Schedule SE form. The form details who qualifies to fill out the form and whether you must use the short SE or the long SE form. A flowchart on page one directs the filer to one or the other.
Most individuals with small businesses and church workers without a W-2 fill out the short SE form. Businesses that made over $97,500 in the tax year are required to file the long SE form. Individuals with unreported tips and uncollected social security or Medicare taxes for wages earned are required to file the long SE form, too.
Each line explains what needs to be entered there. You will enter the amount of earnings for the tax year before deductions. Tax deductions that may apply are recorded on a separate form that works in tandem with the Schedule SE.
There are additional requirements for businesses with employees. Employment taxes must be paid for each employee. If you’ve ever looked at your check stub, this is the federal, state, social security, and Medicare amounts. Visit www.irs.gov for more information on self-employment taxes for individuals and businesses with employees.
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