Self Employment Tax

What is Self-Employment Tax?

Self-Employment tax, also known as SE tax is a Social Security/Medicare Tax for self-employed individuals. If you have a regular job your employer pays half of the Social Security Tax(about 7.5%) and you pay the other half. Since the self-employed have no employer to pick up the other half, they are responsible for the whole thing. The self-employment tax rate is 15.3%( 12.4% for social security and 2.9% for Medicare).You can deduct half of your Self Employment tax when calculating your adjusted gross income, this is explained further on the Tax Forms page. We recommend using an online tax program to file your taxes, these programs are very simple, they do all the work for you. The free programs do not include the Schedule C and Schedule SE forms, which are needed to file taxes for the self-employed. We have done a little research and the best place, with the lowest prices, to file self-employment taxes is at TurboTax.com, they also include free audit support. Click Here to go to the TurboTax website.

 

Do I have to pay Self-Employment tax on my Adsense earnings?

If your net earnings(gross earnings minus deductions) are $400 or over, you will owe SE tax, you file this by using Schedule SE along with Schedule C and your normal 1040 form. Remember you still owe federal and state taxes even if your earnings are under $400, you will just file a Schedule C and 1040, but you will not need to file Schedule SE. A question many people have is if your net earnings are over $400 do you pay SE tax just on the amount over $400 or do you have to pay it on the total earnings? Unfortunatly you have to pay it on the total earnings, to look at an example of this and what a difference it creates, let's say your earnings are $399, you do not owe any SE tax, but if your earnings are $400 you would pay 15.3% of the enitre $400, which means you owe around $61.

 

How do I fill out the Self-Employment tax form?

You will first need to complete Schedule C(you can view directions on this by clicking here). There is a small flow chart at the top of the SE form that let's you decide if you will need to fill out the short form or the long form. If your total wages plus your net Self-Employment earnings are more than $102,000 you will need to file the long form, otherwise most people will be able to use the short form. Below is a diagram that explains how to fill out the SE form..

 

Step 1:

Once you have completed Schedule C, you will carryover your net profit(if over $400) to line 2 of Scedule SE.

 

Step 2:

Multiply your self-employment net earnings by 0.9235, that number is the amount of your self-employment earnings that are subject to the self-employment tax (only 92.35% of your net earnings are subject to this tax). Write that number on line 4. If your total is now under $400 you do not have to file the SE form.

 

Step 3:

Multiply your net earnings(line4) by .153(15.3%), that number is the amount of SE tax you owe. Write that number on line 5 and also carry it over to form 1040, line 57. If you make more than $102,000 your taxes are figured slighlty different. You will not owe the 12.4% Social Security Tax on any earnings over $102,000, but you will still owe the 2.9% medicare tax.

 

Step 4:

You are able to deduct one half of your self employment tax against your adjusted gross income. Multiply line 5 by .50(50%), enter that number on line 6 and also on form 1040, line 27.