01/28/2020
Did you know?
The self-employment tax is a tax paid by people who work for themselves and do not have an employer withholding taxes from their paychecks year-round. The current self-employment tax rate is 15.3% (12.4% for Social Security + 2.9% for Medicare).
Am I self-employed?
There are many job types that fall under the category of self-employed. If you are your own boss – even if it is only part-time – you could be self-employed for tax purposes. Some common examples of self-employment include:
Hairstylist, esthetician, and other professional services
Teaching and childcare
Freelance Creative and IT (i.e. graphic designer, writer, etc.)
Food and Beverage (or Hospitality)
Performance Arts and Entertainment
Uber Drivers/ Truck drivers
Independent Retail (i.e. Rodan and Fields, Advocare, or other home-based businesses)
Any work on a contract basis
Property and Real Estate
Pastors/Clergy
Self-employed individuals typically receive a Form 1099 at the beginning of the year that tells how much money they have earned for services they provide. You are not self-employed if you receive a W-2 from your employer, and you have no other source of income.
Do I need to pay the self-employment tax?
You must pay the self-employment tax if:
You make more than $400 net earnings from being self-employed
You are employed by a church and make more than $108.28.
If you think you could be self-employed but you haven’t earned $400 from your work, it’s possible you have a hobby rather than a business. To qualify as a business, you must make a profit in three out of the last five years.
How do I pay the self-employment tax?
You can pay self-employment tax in quarterly payments or in one lump sum.
If you choose to pay quarterly payments, you must estimate your taxes owed for that quarter using Form 1040-ES. Salaried or hourly workers who receive a W-2 have taxes withheld from every paycheck by their employer. Estimated taxes act for the self-employed the way withholdings do for employees.
If you choose one lump sum at tax time, there could be fees. If you owe more than $1,000 in taxes on your tax return, the IRS will fine you.
What is Form 1099?
Any income outside of a W-2 is recorded and reported through Form 1099. There are several types of 1099. Some of the most common are:
1099-MISC: Income earned without a W-2, royalties and rental income.
1099-H: Health insurance payments like advance payments of qualified health insurance.
1099-INT: Interest income.
1099-K: Merchant card and third-party network payments.
1099-Q: Qualified education programs like the 529 Coverdell Education Savings Account.
1099-R: Annuities, IRAs, retirement plans, and pensions.
1099-S: Profit from selling a home and other real estate transactions
How do I file without a 1099?
You should receive a Form 1099 from anyone who paid you $600 or more to perform a service. If you earned less than $600, you may not receive the form, but you are still responsible for self-employment taxes. For this reason, it is very important that you keep your own records and receipts throughout the year. Your income and expenses will be reported on a Schedule SE, and the amount of tax you owe is calculated on Schedule C.
*Literature compliments of Taxslayer
