Self-employment tax (SE tax) is a social security and Medicare tax primarily for individuals who work for themselves. It is similar to the social security and Medicare taxes withheld from the pay of most wage earners.
If you earned income as a statutory employee, you do not pay SE tax on that income.
Social security benefits are available to self-employed persons just as they are to wage earners. Your payments of SE tax contribute to your coverage under the social security system. Social security coverage provides you with retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits.
By not reporting all of your self-employment income, you could cause your social security benefits to be lower when you retire.
You must be insured under the social security system before you begin receiving social security benefits. You are insured if you have the required number of credits (also called quarters of coverage), discussed next. taxmap/pubs/p334-003.htm#en_us_publink100025059
For 2008, you received one credit, up to a maximum of four credits, for each $1,050 ($1,090 for 2009) of income subject to social security taxes. Therefore, for 2008, if you had income (self-employment and wages) of $4,200 that was subject to social security taxes, you received four credits ($4,200 ÷ $1,050).
For an explanation of the number of credits you must have to be insured and the benefits available to you and your family under the social security program, consult your nearest Social Security Administration (SSA) office.
Making false statements to get or to increase social security benefits may subject you to penalties.
Generally, the SSA will give you credit only for self-employment income reported on a tax return filed within 3 years, 3 months, and 15 days after the tax year you earned the income. If you file your tax return or report a change in your self-employment income after this time limit, the SSA may change its records, but only to remove or reduce the amount. The SSA will not change its records to increase your self-employment income. taxmap/pubs/p334-003.htm#en_us_publink100025062
You must pay SE tax and file Schedule SE (Form 1040) if either of the following applies.
- Your net earnings from self-employment (excluding church employee income) were $400 or more.
- You had church employee income of $108.28 or more.
The SE tax rules apply no matter how old you are and even if you are already receiving social security or Medicare benefits.
The SE tax rate on net earnings is 15.3% (12.4% social security tax plus 2.9% Medicare tax). taxmap/pubs/p334-003.htm#en_us_publink100025065
Only the first $102,000 of your combined wages, tips, and net earnings in 2008 is subject to any combination of the 12.4% social security part of SE tax, social security tax, or railroad retirement (tier 1) tax.
All your combined wages, tips, and net earnings in 2008 are subject to any combination of the 2.9% Medicare part of SE tax, social security tax, or railroad retirement (tier 1) tax.
If your wages and tips are subject to either social security or railroad retirement (tier 1) tax, or both, and total at least $102,000, do not pay the 12.4% social security part of the SE tax on any of your net earnings. However, you must pay the 2.9% Medicare part of the SE tax on all your net earnings.
Deduct one-half of your SE tax as an adjustment to income on line 27 of Form 1040.
For information on methods of calculating SE tax, see Chapter 10, Self-Employment Tax
Table 1-2. Which Forms Must I File?
|IF you are liable for:||THEN use Form:||DUE by:1|
|Income tax||1040 and Schedule C or C-EZ2||15th day of 4th month after end of |
|Self-employment tax||Schedule SE||File with Form 1040.|
|Estimated tax||1040-ES||15th day of 4th, 6th, and 9th months of tax year, and 15th day of 1st month after the end of tax year.|
|Social security and Medicare taxes and income tax withholding||941 or 944||April 30, July 31, October 31, and January 314. |
| ||8109 (to make deposits)3||See Publication 15.|
|Providing information on social security and Medicare taxes and income tax withholding||W-2 (to employee)|
W-2 and W-3 (to the Social Security Administration)
Last day of February (March 31 if filing electronically)4.
|Federal unemployment (FUTA) tax||940||January 314. |
| ||8109 (to make deposits)3||April 30, July 31, October 31, and January 31, but only if the liability for unpaid tax is more than $500.|
|Filing information returns for payments to nonemployees and transactions with other persons||See Information Returns||Forms 1099–to the recipient by January 31 and to the IRS by February 28 (March 31 if filing electronically).|
| || ||Other forms—see the General Instructions for Forms 1099, 1098, 5498, and W-2G.|
|Excise tax||See Excise Taxes||See the instructions to the forms.|
|1 If a due date falls on a Saturday, Sunday, or legal holiday, the due date is the next business day. For more information, see Publication 509, Tax Calendars for 2008. |
|2 File a separate schedule for each business. |
|3 Do not use if you deposit taxes electronically. |
|4 See the form instructions if you go out of business, change the form of your business, or stop paying wages. |