Credit Karma Guide to Self-Employment Taxes

Who must pay self-employment taxes?

If you made at least $400 in self-employment income, you’ll need to pay self-employment taxes.

“Essentially, if you work for someone and are paid without taxes being withdrawn by the person or company, it will be subject to self-employment tax,” says Richard M. Prinzi, CPA and co-founder of F-Sharp Tax Management Services in New York, New York.

Self-employment income is typically any income paid to a nonemployee, including independent contractors, freelancers and sole proprietors.

Generally, any income for which you receive a Form 1099-MISC with an amount in Box 7, Nonemployee compensation, is self-employment income. However, you cannot rely on 1099-MISC forms to calculate your self-employment income, as companies are not required to send you a 1099-MISC unless they paid you at least $600 during the calendar year. Also, companies sometimes ignore their 1099-MISC filing requirement. That means you could have self-employment income that you didn’t receive a 1099-MISC for.

Regardless of whether you receive Form 1099-MISC, self-employment income of $400 or more is subject to self-employment tax. If you meet the criteria, you’re required to pay self-employment taxes regardless of your age, even if you’re currently receiving Social Security benefits.

How is self-employment tax calculated?

The good news is self-employment tax is calculated based on “net earnings from self-employment,” rather than gross earnings. To calculate your net earnings, subtract your business expenses from your business revenues.

Wondering what expenses you can deduct? Prinzi says expenses are typically industry specific. To get an idea of what your deductions are, he recommends seeking the advice of a CPA with experience filing tax returns for people in your industry.

Once you’ve deducted your business expenses from your gross income, if the result is less than the Social Security wage base of $127,200 ($128,400 for 2018), the calculation is simple. If your net income is greater than the Social Security wage base, your calculation will have a few additional steps. We’ll show you how to calculate either way.

 

Written by: Janet Berry-Johnson

Full Article: https://www.creditkarma.com/tax/i/credit-karma-guide-to-self-employment-taxes/

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