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Self-Employment Taxes

The self-employed are required to pay taxes both as an employer and as an employee. They need to pay taxes on their income, and also pay the self-employment tax (SE tax), which consists of Social Security and Medicare taxes.Depending upon their type of business, they may be required to pay additional taxes as well.

self-employed-taxesBusiness Structure

The type of business determines which income tax return form you have to file. The most common designations for business are sole proprietorships, partnerships, corporations, and S corporations. Some forms that the self-employed may need to file are:

  • Form 1040, U.S. Individual Income Tax Return
  • Schedule C (Form 1040), Profit or Loss from Business
  • Schedule C-EZ (Form 1040), Net Profit from Business
  • Schedule F (Form 1040), Profit or Loss from Farming
  • Schedule SE (Form 1040), Self-Employment Taxes
  • Schedule K-1 (Form 1065), Partner’s Share of Income, Credits, Deductions, etc.
  • Schedule K-1 (Form 1065-B), Partner’s Share of Income (Loss) from an Electing Large Partnership

Return Filing Rules

The self-employed are required to file their tax return annually and pay taxes quarterly. You only have to file an income tax return if your net earnings are $400 or more in a year. Even if your earnings are $400 or less during the year and you meet the filing requirements as listed in Form 1040 instructions, you need to file an income tax return.

Calculating Estimated Tax Payments

As far as paying estimated taxes is concerned, you needto consider your expected adjusted gross income, taxable income, taxes, deductions, and any credits you qualify for.

You may use the worksheet in Form 1040-ES to calculate your estimated taxes.The self-employment tax rate is calculated as the percentage of your net earnings from self-employment. This rate consists of 12.4% for Social Security and 2.9% for Medicare taxes.

It is preferable to pay more in estimated taxes than too little, which may trigger penalties. Any unpaid amount in taxes after the due date is treated as a tax debt on which penalties and interest are charged.

To calculate your self-employment tax, you may use Form 1040, Schedule SE. You can deduct the employer-equivalent portion of your self-employment tax in calculating your adjusted gross income.

The tax payment dates for each quarter fall on:

For the period: Due date:
Jan. 1 – March 31 April 15
April 1 – May 31 June 15
June 1 – Aug. 31 Sept. 15
Sept. 1 – Dec. 31 Jan. 15, next year

 
The simplest way to pay taxes is through the Electronic Federal Tax Payment System (EFTPS).