Paying Taxes for the Self Employmed in the US

Definition of self-employment tax
It is the tax that self-employed people pay; thus entrepreneur tax. The salary worker pays monthly taxes. These taxes are deducted from the employee's monthly salary. The self-employment tax is not deducted and must be paid by the entrepreneur, while the salary worker's tax is deducted directly from his income and paid to the government by the employer.

How do you calculate the self-employment tax?
The entrepreneur calculates the total payable to the government through the use of the self-employment schedule. Medical taxes and social benefit payments can also be deducted from the total payable. You can deduct about half the amount of the payable taxes when you calculate the adjusted gross revenue.

Tax rate
The payable rate for self-employed persons is 15.3% of which 12.4% is calculated for social benefits such as disability and senior citizenship, while the remaining 2.9% is calculated for health benefits.

Income subject to tax
A maximum of just over 000 of your total income in 2006 can be subject to combination of taxes.

Filing year
If you make use of a tax calendar other than the current fiscal year, then you must make use of the tax rates and upper limit income at the start of the tax year that you use. This also applies when the tax rates or upper limit income are amended during your tax calendar period.

How to make the payments
You must possess a social security file number, or an individual tax identification file number to pay your self-employment tax.

How to get the social security number

  • Apply using the SS-5 form - (for individuals who never had a number before)
  • This is available from the nearest Social Security facility or you can download it from

How to get the individual tax ID number

  • Apply by using the W-7 form available from the IRS.

Tax estimation
Estimated tax is payable on a monthly basis and is calculated on the potential income during the tax year. You are eligible for paying estimated tax if you anticipate that you will still owe more than in tax when you file your tax returns. If you are working for yourself, and don't have tax withheld, then you are eligible for paying estimated tax.

Are you eligible for paying self-employment tax?
Anyone who has a net income from working as a self-employed individual and earns more than or works for a church and earns more than .27 must pay self-employment tax.

On what is the net income based?
It is based on you total income that is subject to the self-employment tax. Before the net income is calculated, you need to calculate the gross income. The tax is payable regardless of age.

How do you know that you are a self-employed individual?
If you are a business owner or a contractor.

What is regarded as a business?
It is seen as any action that is done in an ongoing way that results in a regular income. Part-time businesses also fall in this category.

What is regarded as a contractor?
Anyone who offers services to the public can be seen as a contractor for example a doctor or lawyer. A person qualifies as a contractor if he has control over payment for work done. A person doesn't qualify as a contractor if the employer is in control of the work to be done and payment for the work done. Only contractors qualify for the payment of self-employment tax.