Tips For Paying Self Employment Taxes

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If you’re self employed, you’re responsible for keeping track of your own taxes, as well as making payments on time. This also involves being on top of your paperwork, filing your tax return on time and keeping hold of receipts and invoices in case you’re asked to prove certain aspects of your tax return. This can be a big hassle, but you can easily land yourself in big trouble if you slip up.

How Much Taxes To Pay and When To Do So

How much you need to pay will be apparent from your tax return in the ‘Amount You Owe’ section once you have filled in the relevant parts of the form. If you are enclosing a check or money order as your payment, sending Form 1040-V (Payment Voucher) along with your tax return means that your payment will be processed more quickly. For payments via check or money order, the IRS will generally expect you to send payment with your completed tax return through the Payment Voucher.

If you anticipate owing at least $1,000 in self employment tax when you file your tax return, you need to pay estimated taxes instead of paying on a yearly basis. Estimated taxes are filed and paid quarterly, and are based on how much you made in previous tax years. This may result in you being owed an IRS refund at a later date if your estimated payment is more than your actual due tax, but you may also find yourself in the position of not having paid enough tax through estimated payments.

Before You Pay Your Self Employment Taxes

Whereas employees have their tax and Social Security payments taken out of their paychecks, self employed earners need to work out their own tax and pay it accordingly. This can be done on Schedule SE (Form 1040). Before you can pay self employment taxes, you need to have either a Social Security Number (SSN) or an Individual Taxpayer Identification Number (ITIN). To get an SSN, you can apply via Form SS-5 (Application for a Social Security Card). If you are not eligible for an SSN, you can apply for an ITIN through Form W-7 (Application for IRS Individual Taxpayer Identification Number).

Schedule SE applies when your net self employment earnings are at least $400, and your net self employment earnings are subject to self employment tax (which will usually be the case for most self employment earnings, along with some employment earnings).

Do You Need To Pay?

If any of the following apply to you, you are classed as self employed and need to pay self employment taxes:

  • You are involved in a trade or business
  • You are a sole proprietor or independent contractor who is free to set your own terms, hours and salary
  • You own your own business or work for yourself
  • You are involved in a business partnership that is classed as a trade or business
  • You run a part-time business, even if this is in addition to full-time employment

How It Affects Income Tax

Paying self employment taxes does not make you exempt from paying income tax, although you have the option of deducting half of your self employment payments for income tax purposes.

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medicare, estimated tax payment, social security card, Self-Employment Tax, schedule se form 1040, Social Security, taxpayer identification number

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Sally Acquire
Sally Acquire is a freelance writer on topics relating to personal finance. She wrote this article for Tax Matters Solutions, a Fort Wayne financial services company that helps people with IRS problems, such as those due to unfiled tax returns.

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2 Comments

  1. gravatar
    LinearChaos
    September 14, 2009, 19:34

    Heh, you must have filed an extension too :)

    Business tax extensions are due tomorrow, Sept. 15th. I’m still finishing up mine.

    Best advice for those just starting out, keep up with your quarterly payments and keep your documentation and register tidy!

  2. gravatar
    Wef Wef
    September 29, 2009, 13:40

    Hi , Great stuff!

    I’ve been self-employed online for about 10 years. I reckon the toughest day working for myself is better than any day working for my old boss.

    Although I outsource and delegate, taking REAL vacations (non-working ones) has been a huge challenge.

    A big mistake I made was that I used to begin all sorts of time-consuming projects simply because they seemed a good idea at the time. It took me ages to understand that I should design my business to suit the sort of lifestyle I wanted. Lesson learned: Don’t start a high-maintenance project unless you’re sure you can delegate those tasks.

    It took us while, but we’re getting there…

    My wife, Joanna, will be off soon on a month-long vacation in Europe (sorry, not Sierra Leone!) and we’re leaving our laptops at home for the first time. I hope we don’t suffer withdrawal symptoms.

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