What Is Self-Employment Tax?

28 Apr 2016
Self Employment Tax

A recent Huffington Post article revealed a startling statistic: as of 2013, self-employed individuals paid the highest income tax rates of any group in the U.S. One reason for this is the undue burden these workers face as a result of the self-employment tax.

Whether you freelance occasionally or own your own small business, you probably know that the current tax laws can make it hard to turn a profit. While full-time workers share their tax burdens with their employers, self-employed people are responsible for paying this sum in full. In other words, employees at larger businesses generally contribute 7.5 percent to Social Security and Medicare while small business owners pay more than 15 percent. When combined with state and federal income taxes, the self-employment tax burden can be crippling.

Identifying Your Self-Employment Burden

As a self-employed person, it’s important to keep abreast of the current tax brackets.

As of 2016, single filers earning $400 to $200K and married individuals who make $400 to $250K and file jointly must pay 15.3 percent of their net self-employment income. Around 12 percent of this contribution goes to Social Security, while just under 3 percent goes to Medicare. The following types of income are subject to self-employment tax holdings:

  • Home business
  • Freelance
  • Independent contractor
  • Other untaxed earned income

To stay on the IRS’ good side, business owners need to report their self-employment tax information annually on the Schedule SE form. Additionally, freelancers and small business owners who anticipate owing $1000 or more in Social Security and Medicare must send in quarterly payments by the following dates: April 15, June 15, September 15, and January 15.

Business owners who are subject to Self Employment Tax are required to file Schedule SE which submitted along with the annual tax return.  In order to calculate the exact amount owed, business owners can refer to either  Schedule C (Profit & Loss from Business for sole proprietorships or LLCs taxed as sole proprietorships) or Schedule K-1 for partnerships.

Reduce Your Small Business Tax Burden

To identify your net self-employment income, find the value of your total business revenue and subtract any expenses. The more valid business expenses you can deduct, the more you can reduce your SE tax burden. For example, you can write off costs associated with office equipment and machinery, business travel, seminars, health insurance, and startup expenses. Additionally, you can cut costs by structuring your company as an S Corp or LLC as opposed to another business type.  We recommend you contact a certified tax professional for guidance on self employment taxes.

Contact Accurants for Easy Expense Tracking & Schedule C

Tracking purchases can be a hassle for the already-overworked small business owner. Moreover, if you try to save every receipt and invoice that crosses your path, key pieces of information will likely get lost in the shuffle. The benefit of Accurants’ accounting platform is that it lets business owners track expenses in a secure, cloud-based location that can be accessed from anywhere with a Wi-Fi connection. Take advantage of all possible tax deductions while minimizing office clutter and your self-employment burden.  Accurants generates Schedule C form filled out with data already entered in the system as part of the transactions.  This process saves a lot of time for business owners as they do not have to purchase additional software & key in all the data over again to know about their self employment tax burden.

Ready to see what Accurants can do for you? Sign up today for a free 30-day trial or use our online contact form to speak to a member of our team. We look forward to helping you keep more of your money where it belongs: in your pocket.