The self-employment tax is a tax paid by people who work for themselves. This also means that they don’t 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.
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.
How do I pay the self-employment tax?
You can pay self-employment tax in quarterly payments or in one lump sum.
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
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.
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