While workers who are employed by another person, company, business, and similar entities get deductions from their wages for the Medicare and Social Security taxes, self-employed individuals are charged for the same. These are collectively known and referred to as self-employment tax. It is important to note, though, that despite such a collective term, this type of tax is not fully inclusive in any sense. It is mainly for Social Security and medical coverage. Depending on the nature of the business one is running, there are many other taxes, one might be deemed responsible for paying.
There are generally two factors that determine whether you have or do not have to pay the self-employment tax. One is when the net of your earnings from being self-employed reaches a specified amount, excluding any income derived from being a church employee. Another determinant is when one’s church employee income reaches a predetermined amount. What you earn from your self-employment is taxable under the provisions governing self-employment tax. Look at the cheap tax service near me website for more information about the best and cheapest tax service in Yonkers.
For self-employed people who have complete ownership over the business and those who fall under the independent contractor category, the Schedule C or C-EZ is used for figuring out your net earnings. Before you can determine net profits, you first have to decide on your total revenues that can be subjected to the self-employment tax. The rules concerning self-employment tax do not have exemptions about your age, even individuals who are already making use of their benefits from Medicare and Social Security.
In short, you are responsible for figuring out your self-employment tax. Schedule SE or Form 1040 is what you need to secure and make use of when doing so. Regular employees do not have to go through the procedure by themselves because the employers are the ones who figure out their Medicare and Social Security taxes, which are then withheld from their pay automatically.
You have the choice to take away the portion of the self-employment tax that is designed for the employer when you determine your gross income. This option is not available for employed individuals. The said deduction has no impact on your self-employment net earnings nor on the self-employment tax itself. The only thing it affects is the income tax you have to pay for.
It is possible to apply for the Earned Income Tax Credit. However, it would be best if you determine first the rules of eligibility for it. If you are indeed eligible, you can fill out and submit the Form 1040 Schedule C.
A unique set of rules guides people who work by providing in-home services. These include caregivers and similar professionals who cater to disabled as well as older clients who need assistance in their daily lives. In cases when the caregiver for such individuals is a family member, there is no need for the employer to pay any employment taxes. However, it is a must for the employer to fill out a Form W-2 to serve as a report of the caregiver’s compensation.
In situations involving caregivers who are not related in any way with the elderly or persons with disabilities and are also not considered to be technically an employee, the former must pay the self-employment tax. This is a case-to-case basis, though, and is determined through the consideration of specific details.