Tips For Paying Self Employment Taxes

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.

About the Author

By , on Sep 10, 2009
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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Leave Your Comment (5 Comments)

  1. Ted says:

    Hi,

    I like to have more information about a statement above:
    “although you have the option of deducting half of your self employment payments for income tax purposes.”

    How that “deducting half” is effecting my whole tax situation? Haw can I benefit from it?

    Thank you,
    Ted T.

  2. Pinyo says:

    @Cassie — You can use for 1040-ES to pay the Fed. You will have to find out what form to use for your state/local.

    @Cheryl — Without knowing your filing status and other information, my estimate is that you should withhold 15% of your income for federal withholding, 10.4% for Social Security, 2.9% for Medicare, and the State/Local will depend on where you live (I can’t help you there).

  3. Cheryl says:

    I am considering accepting a job as a caregiver for a private individual. I will have to calulate & pay in my tax witholdings from my income myself. My gross income will average $400/week. I am confused to what taxes I will need to calulate for my witholdings. SS, MCR, State, Fed.?

  4. cassie oaks says:

    I just started new business ‘Harvest Services” nanny & cleaning,may rent my house soon .I got a ein# & some ss info, still not sure how /where to pay taxes estimated income tax. I think I will pay quarterly my income 1st month should be 1,100.00

  5. LinearChaos says:

    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!

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