If you are an independent contractor, sole proprietor or a member in a partnership or of an LLC, you are considered self-employed and need to understand your self-employed tax obligations. You're subject to the tax if you were self-employed and your net earnings from that source were $400 or more.
As a self-employed individual, generally you are required to file an annual return and pay estimated tax quarterly.
Self-employed individuals generally must pay self-employment tax (SE tax) as well as income tax. SE tax is a Social Security and Medicare tax primarily for individuals who work for themselves. It is similar to the Social Security and Medicare taxes withheld from the pay of most wage earners.
You must figure your net profit or net loss from your business to determine if you are subject to self-employment tax. You figure self-employment tax (SE tax) yourself using Schedule SE (Form 1040). A self-employed has to pay 15.3% of his or her self-employment income.
The rate consists of two parts: 12.4% for social security (old-age, survivors, and disability insurance) and 2.9% for Medicare (hospital insurance).
The rate consists of two parts: 12.4% for social security (old-age, survivors, and disability insurance) and 2.9% for Medicare (hospital insurance).
Inactive partners are subject to the self-employment tax.
You can deduct the employer-equivalent portion of your self-employment tax in figuring your adjusted gross income. This deduction only affects your income tax. It does not affect either your net earnings from self-employment or your self-employment tax.
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