Self-Employment Taxes

Self-employment taxes include both Social Security and Medicare taxes, paid to federal and state authorities. Unlike employees, self-employed individuals are responsible for both their share and the matching amount, known as “both halves.” These taxes are separate from income taxes.

Who Has to Pay Self-Employment Taxes?

Individuals who are self-employed or have net earnings of $400 or more, including certain church employees earning over $108.28, are required to pay self-employment taxes. Independent contractors and sole proprietors, such as ride-sharing drivers, food delivery drivers, gardeners, childcare and homecare workers, street vendors, house cleaners, and construction contractors, are also subject to these taxes.

How to Handle Self-Employment Taxes

Federal self-employment taxes go to the Internal Revenue Service (IRS), and state and local taxes are reported to the respective authorities using your Social Security Number or Individual Taxpayer ID Number (ITIN). Self-employed individuals use Schedule C to calculate net profit from self-employment and Schedule SE to determine self-employment tax.

When Are Self-Employment Taxes Due?

Self-employment taxes are due annually based on the tax year deadlines. However, since self-employed individuals don’t have taxes withheld from paychecks, they must make quarterly estimated tax payments throughout the year. Some self-employed individuals must also pay quarterly estimates if they have a federal income tax debt of at least $1,000 annually or if they earned more than $75,000 ($150,000 for married couples filing jointly) in the previous tax year.

Tax Deductions for Self-Employed Individuals

Despite paying both halves of self-employment taxes, there are a number of tax deductions available to self-employed individuals. Some common deductions include:

  • Business expenses: This includes any ordinary and necessary expenses incurred while running your business, such as office supplies, travel expenses, and equipment costs.
  • Home office deduction: If you use a portion of your home for business purposes, you may be able to deduct a portion of your home mortgage interest, property taxes, and utilities.
  • Health insurance deduction: Self-employed individuals can deduct the cost of their health insurance premiums from their net earnings from self-employment.
  • Retirement contributions: Self-employed individuals can make deductible contributions to a retirement plan, such as a SEP IRA or Solo 401(k).

Tips for Paying Self-Employment Taxes

Here are a few tips to help you save money and avoid penalties when paying self-employment taxes:

  • Keep track of your business expenses: This will help you to maximize your tax deductions.
  • Make estimated tax payments: This will help you to avoid paying a large tax bill at the end of the year.
  • File your tax return on time: If you cannot file on time, you can file an extension. However, you will still be required to pay estimated taxes.
  • Get professional help: If you are unsure about how to calculate or pay your self-employment taxes, you should consult with a tax professional.

This article was written by Alla Tenina. Alla is one of the best tax attorneys in Los Angeles California, and the founder of Tenina Law. She has experience in bankruptcies, real estate planning, and complex tax matters. Visit www.teninalaw.com for more information. The information provided on this website does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only. Information on this website may not constitute the most up-to-date legal or other information. This website contains links to other third-party websites. Such links are only for the convenience of the reader, user or browser; the ABA and its members do not recommend or endorse the contents of the third-party sites.

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