TurboTax FAQ
TurboTax FAQ
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What is the Self-Employment Tax and Who has to Pay It?

Self-employment taxes are the way that people who are not company employees pay Medicare and Social Security taxes.

Employees have a portion of these taxes withheld by their employers from their paycheck and the employer pays the rest.

But, if you are self-employed, you have to pay both the employer and employee portions (the entire amount).

What is self-employment tax?

The tax is divided into two parts – Social Security tax and Medicare tax.

  • The Social Security portion is paid on all or part of your net earnings from self-employment income. The amount of income that is subject to Social Security tax is set by law and can change from year to year. For 2014, you pay this tax on the first $117,000, and none on amounts above that.
  • The Medicare portion is paid on all of your net earnings from self-employment.

Who has to pay self-employment tax?

If your net earnings from self-employment were $400 or more for 2014, you must pay self-employment tax and file Schedule SE (Form 1040).

Do I have to pay self-employment tax on everything I make?

Not everything, but pretty close to everything.

You pay Social Security tax on the first $117,000 (in 2014) of your net earnings from self-employment, and none on amounts beyond that.

You pay Medicare Tax on all of your net earnings from self-employment.

How do I calculate the amount of self-employment tax that I owe?

This is where TurboTax really does the work for you.

When you enter the information for your self-employment income, TurboTax will automatically calculate the appropriate amount of taxes.

How do I report and pay the self-employment tax?

TurboTax will automatically complete form SE and calculate the self-employment tax.

This amount will be added to your income tax on your tax return to determine your refund or the amount that you owe.

Do I get to deduct my self-employment tax for income tax?

Yes, but only a portion. The income tax and self-employment tax are really two different things even though they both get filed with your annual income tax return.

With a business, the company pays a portion of the tax and the employee pays the rest. When a business pays its share, it usually gets to deduct that amount from income before calculating its income taxes.

A self-employed person is really both the employer and employee. As a result, you get to deduct the employer portion from your income before your income taxes are calculated.

For more information on the self-employment tax, see IRS Tax Topic 554: The Self-Employment Tax and IRS Publication 334, Tax Guide for Small Business.

For more information on church related income and self-employment taxes, refer to IRS Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers.