What Is Self Employment Tax for 2015?
Self-employment tax is a tax that individuals who work for themselves must pay to fund Social Security and Medicare. It is similar to the Social Security and Medicare taxes that are withheld from the paychecks of employees. However, since self-employed individuals do not have an employer to withhold these taxes, they are responsible for paying them directly to the Internal Revenue Service (IRS).
The self-employment tax rate for 2015 is 15.3% of net earnings. This rate is comprised of two parts: 12.4% for Social Security and 2.9% for Medicare. However, individuals are only required to pay the Social Security portion on the first $118,500 of net earnings. Any earnings above this threshold are subject only to the Medicare portion of the tax.
The self-employment tax is reported and paid on Schedule SE, which is filed along with the individual’s annual income tax return. The tax is calculated based on the net profit from self-employment, which is determined by subtracting business expenses from business income.
8 FAQs about Self Employment Tax for 2015:
1. Who is considered self-employed?
Anyone who earns income from a business they operate as a sole proprietor, independent contractor, or freelancer is considered self-employed.
2. Do I have to pay self-employment tax if I have a part-time job?
If you earn income from self-employment in addition to your part-time job, you may be required to pay self-employment tax. However, if your net self-employment income is less than $400 for the year, you are not required to pay self-employment tax.
3. Can I deduct self-employment taxes paid from my income?
Yes, self-employment taxes paid can be deducted as an adjustment to income on your individual tax return.
4. Can I reduce my self-employment tax liability?
There are several deductions and credits available to self-employed individuals that can help reduce their overall tax liability. These include deductions for business expenses, health insurance premiums, and retirement contributions.
5. What if I don’t pay self-employment tax?
Failure to pay self-employment tax can result in penalties and interest charges. It is important to accurately report and pay your self-employment tax to avoid these consequences.
6. Can I opt out of paying self-employment tax if I am already paying into Social Security through another job?
No, self-employment tax is separate from the Social Security tax withheld from wages. Even if you are already paying into Social Security through another job, you are still required to pay self-employment tax on your self-employment income.
7. Do I have to pay self-employment tax if my business is not profitable?
If your business does not generate a profit, you may not have to pay self-employment tax. However, it is still important to accurately report your business income and expenses to the IRS.
8. What if I make estimated tax payments throughout the year?
If you expect to owe $1,000 or more in self-employment tax for the year, the IRS requires you to make estimated tax payments throughout the year to avoid underpayment penalties. These payments are typically made on a quarterly basis.