Self Employment Tax Social Security

Self-employment tax is a social security and Medicare tax for individuals who work for themselves, similar to social security and Medicare taxes withheld from the pay of wage earners. Self Employment Tax Social Security benefits are available to self-employed persons just as they are to wage earners. Like federal income tax, self-employment taxes are paid through quarterly estimated tax payments. For more detailed information on self-employment tax, refer to IRS Publication 533, Self-employment Tax.

If you are self-employed, you must pay the Self-Employment tax, or Self Employment Tax Social Security. The Self Employment Tax Social Security and Medicare are for self-employed people.

The Self Employment Tax Social Security (and others who have “earned income”) also pays into Social Security Fund at a rate equivalent to employees and employers. FICA tax for the self-employed is called “self-employment tax”. The self-employment tax is computed at the same rates (15.3%) as employee/employer FICA and is subject to the same annual limits.

You usually must pay Self Employment Tax Social Security if you had net earnings from self–employment of $400 or more. Generally, net earnings from self–employment represent 92.35% of your net profit. Net profit is calculated by subtracting ordinary and necessary trade or business expenses from your gross self-employment income. You are self–employed for this purpose if you are a sole proprietor, an independent contractor, a member of a partnership, or are otherwise in business for yourself. You can be liable for paying Self Employment Tax Social Security even if you are currently receiving social security benefits.

If you had a small profit or net loss from your business but want to pay into the social security system, you may be eligible to use one of the two optional methods to compute your net earnings from Self Employment Tax Social Security. Refer to the Instructions for Schedule SE to see if you qualify to use an optional method. An optional method may increase your earned income credit or the child and dependent care credit.

The total Self Employment Tax Social Security rate is 15.3% of your net earnings from self–employment. This rate is the total of 12.4% for Social Security and 2.9% for Medicare. The maximum amount of net earnings subject to the social security tax is $87,900 for 2004. All of your net earnings are subject to the Medicare tax. Self Employment Tax Social Security is computed on Form 1040, Schedule SE (PDF). When figuring your adjusted gross income on Form 1040, you can deduct one–half of your self–employment tax. This deduction is figured on Schedule SE. The Social Security Administration uses the information from Schedule SE to figure your benefits under the social security program.
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