Self-Employment Tax and Social Security Payment

[KBoy116]

My wife and I are both retired and living on social security.  She started an Etsy business in 2021, which produces a minimum income ($3,000 in 21), which I included on our joint 2022 income tax return.  However, the income wasn't enough to exceed the standard deduction allowance when filing through TurboTax.  Am I still required to file self-employment taxes and pay into social security?  If age is any consideration, I am 75 and she is 73.

[conniem123 · Accepted solution]

Hi kboy116!

Thank you for the question today!  Congratulations on retirement!

The IRS does require you to file an income tax return if your net earnings from self-employment were $400 or more.  Keep in mind this is net earnings, which is income less her business expenses.

As long as her net earnings are $400 or more, you will need to include on your tax return, and the self-employment tax too.

I hope this information is helpful.  Have a great day!

Connie

[Laura_CPA]

Hello KBoy116, 

Hope all is going well with you and your wife. Happy to answer your question, normally your net profit from a business is subject to self-employment taxes even when you are receiving social security benefits. In fact, some of the social security you receive may be taxable up to 85% when you have other sources of income (in your case, Etsy business with a profit). 

Unfortunately, your age does not currently exempt you from paying self-employment taxes, shocking, right? With the new tax reform and economy, we noticed a lot retired individuals had to go back to work part-time and when they would do their taxes, they were not happy to find out that they had to pay taxes on the social security benefits they were receiving because of their new part-time job. 

Hope this helps, please let me know if I have answered your question. 

Cheers,

Laura 

[KBoy116]

So, do I start fresh with 2023 income tax return?  Or do I need to file a corrected return for last year (2022)?

Do I need to file these taxes quarterly or can they be included on the annual return?

Will the Turbo Tax software walk me through the process?

Thanks,

[Laura_CPA]

To answer your first question, I need to respectfully ask you what is making you think you need to file a corrected return? Have you not included social security benefits as income or the net profit from the business? 

If you believe you will owe the IRS $1,000, you are required to make estimated tax payments, these are pre-payments and will pick them up on your annual tax return to offset any tax liability. 

Turbotax will help you in this process, in fact, if you owe taxes, our system will automatically prepare the estimated tax vouchers based on your income for that year. We recommend you use our Tax Calculator  to estimate how much you will owe. 

[KBoy116]

I included the net profits in last year's return but not additional self-employment taxes.  I wasn't aware I needed to do this.  The net profits plus my social security income did not exceed my standard deductions, so I received a return instead of having to pay additional income tax.  

So to answer your question, yes, the additional income was above $400 (actually $3,000), but I did not pay self-employment taxes.  I am asking if I need to file a corrected return for last year?

Appreciate your response!  Thanks!

[Laura_CPA]

In order to answer your question, can you please confirm if the $3,000 is the net profit on your Schedule C, line 29? (For your reference: https://www.irs.gov/pub/irs-pdf/f1040sc.pdf) 

[VolvoGirl]

How did you report your self employment income?  Did you fill out Schedule C?  If you had a Net Profit of $400 or more Turbo tax would automatically calculate the self employment tax.   Check if you have Schedule SE for it and 1040 Schedule 2 line 4 which goes to 1040 line 23.

If you didn't get Schedule C or pay SE tax you need to amend your return.  The SE tax is in addition to any regular income tax you owe.   How did you get a tax refund?  Did you have withholding taken out of your Social Security?  Or pay in extra estimated payments?  

By reporting self employment income it counts towards your Social Security benefits and might increase the SS checks you get.  

[conniem123 · Accepted solution]

Hi KBoy116,

TurboTax would automatically calculate the self employed taxes.  Look at your prior year tax return, the self employed taxes would be reported on your Schedule 2 line 4.  That same amount flows through to your tax return, Form 1040 line 23.

Hope this is helpful!

Connie

[Laura_CPA]

@KBoy116 if your $3,000 was your net profit, then you've already paid self-employment taxes and there is no need to correct your tax return. Please review your prior year tax return and check to see if you have Schedule SE, that will show the amount of Self-employment taxes already paid. 

Cheers,

Laura 

[KBoy116]

Thanks for the information.  I looked at last year's return.  Turbo Tax return included the self-employment tax.  Yea!  I'm legal!

Appreciate the help!

KBoy116

[Laura_CPA · Accepted solution]

Yay! @KBoy116 glad we could help you. 

Have a great day, 

Laura 

[KBoy116]

You actually did help me!  I am delighted!

Thank you!