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Self Employment Tax
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 Posted 12:10 AM Mar. 1, 2010 Tax Guide for Small Business
http://www.irs.gov/publications/p334/ch01.html
The Social Security Administration (SSA) time limit for posting self-employment income. Generally, the SSA will give you credit only for self-employment income reported on a tax return filed within 3 years, 3 months, and 15 days after the tax year you earned the income. If you file your tax return or report a change in your self-employment income after this time limit, the SSA may change its records, but only to remove or reduce the amount. The SSA will not change its records to increase your self-employment income.
Who must pay self-employment tax. You must pay SE tax and file Schedule SE (Form 1040) if either of the following applies.
The SE tax rules apply no matter how old you are and even if you are already receiving social security or Medicare benefits.
SE tax rate. The SE tax rate on net earnings is 15.3% (12.4% social security tax plus 2.9% Medicare tax).
Maximum earnings subject to SE tax. Only the first $106,800 of your combined wages, tips, and net earnings in 2009 is subject to any combination of the 12.4% social security part of SE tax, social security tax, or railroad retirement (tier 1) tax.
All your combined wages, tips, and net earnings in 2009 are subject to any combination of the 2.9% Medicare part of SE tax, social security tax, or railroad retirement (tier 1) tax.
If your wages and tips are subject to either social security or railroad retirement (tier 1) tax, or both, and total at least $106,800, do not pay the 12.4% social security part of the SE tax on any of your net earnings. However, you must pay the 2.9% Medicare part of the SE tax on all your net earnings.
Deduct one-half of your SE tax as an adjustment to income on line 27 of Form 1040. 
More information. For information on methods of calculating SE tax, see Chapter 10, Self-Employment Tax.
Table 1-2. Which Forms Must I File?
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The SE tax rules apply no matter how old you are and even if you are already receiving social security and Medicare benefits.
Who Must Pay SE Tax?Generally, you must pay SE tax and file Schedule SE (Form 1040) if your net earnings from self-employment were $400 or more. Use Schedule SE to figure net earnings from self-employment. Sole proprietor or independent contractor. If you are self-employed as a sole proprietor or independent contractor, you generally use Schedule C or C-EZ (Form 1040) to figure your earnings subject to SE tax.
SE tax rate. The SE tax rate on net earnings is 15.3% (12.4% social security tax plus 2.9% Medicare tax).
Maximum earnings subject to self-employment tax. Only the first $106,800 of your combined wages, tips, and net earnings in 2009 is subject to any combination of the 12.4% social security part of SE tax, social security tax, or railroad retirement (tier 1) tax.
All of your combined wages, tips, and net earnings in 2009 are subject to any combination of the 2.9% Medicare part of SE tax, social security tax, or railroad retirement (tier 1) tax. If your wages and tips are subject to either social security or railroad retirement (tier 1) tax, or both, and total at least $106,800, do not pay the 12.4% social security part of the SE tax on any of your net earnings. However, you must pay the 2.9% Medicare part of the SE tax on all your net earnings.
Special Rules and ExceptionsAliens. Generally, resident aliens must pay self-employment tax under the same rules that apply to U.S. citizens. Nonresident aliens are not subject to SE tax. However, residents of the Virgin Islands, Puerto Rico, Guam, the Commonwealth of the Northern Mariana Islands, or American Samoa, are subject to self-employment tax, as they are considered U.S. residents for self-employment tax purposes. For more information on aliens, see Publication 519, U.S. Tax Guide for Aliens.
Child employed by parent. You are not subject to SE tax if you are under age 18 and you are working for your father or mother.
Church employee. If you work for a church or a qualified church-controlled organization (other than as a minister or member of a religious order) that elected an exemption from social security and Medicare taxes, you are subject to SE tax if you receive $108.28 or more in wages from the church or organization. For more information, see Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers.
Fishing crew member. If you are a member of the crew on a boat that catches fish or other water life, your earnings are subject to SE tax if all the following conditions apply.
Notary public. Fees you receive for services you perform as a notary public are reported on Schedule C or C-EZ but are not subject to self-employment tax (see the Instructions for Schedule SE (Form 1040)).
State or local government employee. You are subject to SE tax if you are an employee of a state or local government, are paid solely on a fee basis, and your services are not covered under a federal-state social security agreement.
Foreign government or international organization employee. You are subject to SE tax if both the following conditions are true.
U.S. citizen or resident alien residing abroad. If you are a self-employed U.S. citizen or resident alien living outside the United States, in most cases you must pay SE tax. Do not reduce your foreign earnings from self-employment by your foreign earned income exclusion.
Exception. The United States has social security agreements with many countries to eliminate double taxation under two social security systems. Under these agreements, you generally must only pay social security and Medicare taxes to the country in which you live. The country to which you must pay the tax will issue a certificate which serves as proof of exemption from social security tax in the other country.
For more information, see the Instructions for Schedule SE (Form 1040).
More Than One BusinessIf you have earnings subject to SE tax from more than one trade, business, or profession, you must combine the net profit (or loss) from each to determine your total earnings subject to SE tax. A loss from one business reduces your profit from another business. |
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