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Self-Employment TaxIf you work for yourself, even on a part-time basis, and earn an income from it, the IRS expects you to pay self-employment tax. What is self-employment tax? Self-employment tax is really two combined taxes ”Social Security and Medicare. Recall that when you received pay stubs from previous employers there were deductions made from your check each week under a box called FICA (Federal Insurance Contributions Act). In that case, both you and your employer paid equally into your FICA. FICA consists of 6.2 percent Social Security tax and 1.45 percent Medicare tax. When you work for yourself, you are expected to pay both the employer's share as well as the employee's share. With all these tax obligations, it's a wonder people start any businesses at all. But to lessen the blow, the IRS allows you to get a deduction for one half the FICA paid on the front of Form 1040. Form 1040 SE will complete the entire calculation. |
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