If you are self-employed, you most likely have to pay self-employment tax. Self-employment tax consists of Medicare and Social Security taxes for individuals who work for themselves and is similar to the Medicare and Social Security taxes that are withheld from the pay of most people who earn wages.

In order to figure self-employment tax, you should use Schedule SE (Form 1040).

You must pay self-employment tax and file Schedule SE (Form 1040) if your net earnings from self-employment were $400 or more. For church employees, your income needs to be $108.28 or more.

Generally, you must pay self-employment tax on net earnings from self-employment.  If you are self-employed as a sole proprietor or independent contractor, you generally use Schedule C or C-EZ to figure net earnings from self-employment.

If you have earnings subject to self-employment tax, use Schedule SE to figure your net earnings from self-employment.  Before you figure your net earnings, you generally need to figure your total earnings subject to self-employment tax.

Note: The self-employment tax rules apply no matter how old you are and even if you are already receiving Social Security or Medicare.

If you have questions about self-employment tax, consult with a tax professional.

Daniel Stoica Accounting Professional

It’s summer and school is out, which means plenty of students will be out looking for summer jobs. Keep in mind, though, that the IRS wants you to remember that you won’t be keeping all of the money you will make from that summer job. You will have taxes withheld from your pay check.

There are six IRS tips to keep in mind when you start your summer job.

1. On your first day of your new job, you will be required to fill out a W-4, Employee’s Withholding Allowance. Your employer will use this form to determine how much tax will be taken out each pay period. If you have more than one summer job, you will fill out a W-4 for each job. To make sure the correct amount is being taken out, you can check the Withholding Calculator on the IRS website.

2. Depending on the type of summer job you get, you might get tips as part of your income. All tips are taxable and you must account for that at tax time. 

3. A lot of students take on odd jobs during the summer to make some extra money, and any income your receive, from either baby-sitting or mowing lawns, is taxable.

4. If you earn $400 or more from those odd jobs, you will also end up having to pay self-employment taxes, because you are, basically, self-employed. These taxes pay for your Social Security and Medicare benefits. Social Security and Medicare are for the self-employed as well as those who work for someone else, for when you retire. Your self-employment tax is calculated on the 1040 Form, Schedule SE.

5. If you are in the ROTC program for advanced training, your food and lodging allowances are not taxable. But active duty pay, the pay you get for summer ROTC, is subject to tax withholding.

6. There are special rules that apply if you are a newspaper carrier. You are considered a “direct seller” and are self-employed as far as your taxes are concerned, if you meet the following conditions:

-Your job involves delivering newspapers.
-All of your pay comes from sales instead of the hours you work.
-You are under contract as a newspaper delivery service worker that states you are not an employee and must withhold your own taxes.

Keep these simple tips in mind when looking for your summer job and you will not be penalized for not withholding enough in taxes come tax time.

Daniel Stoica Accounting Professional