One source of income that is forecastable and plannable is taxes. When it comes time to pay your taxes, you always have an idea of how much they will be. These prices do, however, fluctuate annually. The amount you must pay back to the government is influenced by inflation and your income.
While the overall amount of tax that must be paid is fixed, each taxpayer’s payroll deduction eligibility and self-employment tax payment amounts will vary.
The self-employment tax is what?
The Medicare and Social Security taxes for people who operate as freelancers or gig workers are referred to as self-employment taxes. Even if they also get a regular full-time salary from a normal job, these people are nonetheless regarded as self-employed. The net income is subject to self-employment taxes. Self-employed people must file a Schedule SE tax form with the IRS in order to self-report their taxes.
“SE” Tax Rates
How much is the self-employment tax rate then? The US’s current self-employment tax rate is 15.3%. 12.4% goes to Social Security and 2.9% goes to Medicare, making up the rate in the US. If an employee is employed full-time by a company, their employer is liable for the other half of these taxes, which are made up of FICA tax, which the employee is only needed to pay 7.65% of. However, contractors and those who work for themselves are required to pay taxes at the 15.3% rate without having them withheld by their employer. The self-employment tax is still deductible to the extent of 50%. Be sure to use the federal income tax rate to ensure accurate calculations. A federal tax calculator can help solve this problem.
Who must pay the SE tax?
You must pay self-employment tax if your income from independent contract work as a freelancer is $400 or more. You also fall into the “SE” tax bracket if you work for a church and make almost $108.28. If you engage in multiple business ventures, the whole amount of their combined earnings may also subject you to self-employment tax.
You might need to pay SE tax if you’re an Instacart 1099, Grubhub 1099, Uber 1099 or Doordash 1099 worker. Working as a delivery driver means you’re an independent contractor and not technically an employee of the company.
How to File Your Self Employment Tax
By figuring out your self-employment tax, you can determine exactly how much you owe in taxes and how much you contribute to social security. Calculate your self-employment tax (SE tax) on Schedule SE (Form 1040 or 1040-SR) and pay it on Form 1040-ES, Estimated Tax for Individuals, together with your federal income tax and any other amounts owed. To calculate your SE tax and complete Schedule SE, use Flyfin’s online tax calculator. The penalty for underpaying estimated tax may be due if you are required to file Schedule SE and Form 1040 but do not pay all the tax you owe through withholding or anticipated tax payments.
Are you qualified to file quarterly taxes as a freelancer?
Yes. You anticipate having a balance of more than $1,000 after tax deductions and credits, at which point you must pay quarterly taxes. Additionally, if you anticipate receiving less in tax credits and withholding than:
1. 90% of what you expect to owe in taxes for the current tax year.
2. If it spans the complete calendar year, the preceding year’s taxable income
Being self-employed is wonderful. However, it is important to follow all the tax requirements set by the IRS or you could get selected for an audit.