When you’re self-employed, you can enjoy benefits such as being your own boss and possibly even setting your own schedule. However, you’ll probably also pay more in taxes than somebody who is not self-employed—and that’s all thanks to self-employment taxes.
Still, not every self-employed person is required to pay these taxes. By having a better understanding of what self-employment taxes entail and what the requirements are for paying them, you can more carefully plan for tax time.
What Are Self-Employment Taxes?
When you work a “traditional” job that takes taxes out of your paycheck automatically, one of the deductions made is for Social Security and Medicare taxes. The nice part about having an employer, however, is that your employer actually pays for half of your Social Security and Medicare contributions.
When you’re self-employed, on the other hand, there is no employer to cover this portion; you are required to pay it all out of your own pocket. This is known as self-employment tax, and the rate of this tax is currently 15.3% (12.4% towards Social Security and 2.9% towards Medicare taxes). You pay this on top of your regular Federal and state taxes, too.
Who is Required to Pay Them?
If you’re self-employed, you are generally required to make these tax payments—but there are some exceptions. If you make less than $400 for the tax year or if you are a self-employed church worker who has made less than $108.28, you are exempt from paying self-employment taxes.
Getting Started With Self-Employment Taxes
It is important to pay any self-employment taxes owed so that you don’t end up facing penalties, fines, and even interest later on. For most self-employed workers, it is most practical to pay these taxes as part of your quarterly estimated tax payments. These are typically due in January, April, June, and September of every tax year.
Federal estimated tax payments can be made online at the Electronic Federal Tax Payment System® website using your Social Security number or taxpayer-identification number. To pay estimated state taxes, you will need to check with your state to see what kind of system is in place. These payments can often be made either by mail or online through a secure platform.
Regardless of how you go about paying your self-employment taxes, it is important to keep track of how much you paid and when. You will need this information when you file your taxes at the end of the year.
Need More Help With Taxes?
Handling self-employment taxes can be frustrating and confusing, especially if you’ve never had to pay these taxes before. Sometimes, the best option to make sure you’re doing everything right is to consult with an experienced financial advisor.
At Counting House Associates, our financial team has plenty of experience and knowledge when it comes to self-employment taxes. Schedule your consultation with our friendly team today to get the professional help you need with your taxes and other finances.