What is the Self-Employment Tax?

self-employment tax

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. Read more about what types of jobs are self-employed here.

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. Read more about hobbies versus business here. 

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. Read more about paying estimated payments to avoid this fine here. 

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 

For a more complete guide to all the tax forms, read more here. 

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.  

TaxSlayer asks for your information and fills out these forms for you so you don’t need to worry about which ones apply to you. Make filing your return easy with features like a deduction finder and all forms being included.

This article is up to date and accounts for tax law changes for tax year 2018 (tax returns filed in 2019). Learn more about tax reform enacted under the Tax Cuts and Jobs Act here.

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