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What is Self Employment Tax?

Garry Crystal
Garry Crystal

In the United States, self employment (SE) tax is the tax primarily levied upon individuals who work for themselves — self-employed people. It is a Social Security and Medicare tax that is very similar to the taxes withheld from the wages of people employed by another person or business — employees.

Sole proprietors, owners of small businesses, and independent contractors are examples of self-employed people. You can be self-employed and work part time or full time as long as you are working for yourself. Basically, if you work for yourself and someone else does not pay your tax, you must pay this tax.

Self-employment tax is reported on Form 1040 as part of an individual's federal tax return.
Self-employment tax is reported on Form 1040 as part of an individual's federal tax return.

The self employment tax rate is subject to change, but as an example, in 2010 it was 15.3%. Medicare accounted for 2.9% and Social Security for the other 12.4%. The Social Security portion is based on the first $94,200 US dollars (USD) the taxpayer receives as income. Therefore, the most an individual would pay in terms of this portion is $11,680 USD. The Medicare portion of the tax does not have a cap on the income on which it is based; it is based on the taxpayer's total income. For both of these portions of the tax, the taxpayer's income includes combined wages, tips, as well as net earnings.

Those who are self employed should file a 1040 form as well as a schedule SE.
Those who are self employed should file a 1040 form as well as a schedule SE.

To pay self employment tax, the taxpayer must have a Social Security number (SSN) or, alternatively an individual taxpayer identification number (ITIN). SSNs may be applied for using Form SS-5. Non-resident aliens and resident aliens that do not have and are ineligible for a SSN will receive a ITIN from the Internal Revenue Service (IRS). ITIN applications may be made with a Form W-7.

The tax needs to be paid as you earn money throughout the year. You must make quarterly estimated tax payments if you think you will owe tax. Quarterly payments should be made using Schedule SE (Form 1040).

If you are self-employed and your net earnings are $400 USD or more, then you must pay self employment tax. Also, if you are a church employee with an earning income of just over $108 USD or more, then you must pay the tax.

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Discussion Comments


If you have a full time job and received a W2 form from the employer and made less than $400 in a check form from a side job but didn't receive a 1099, does that SE amount need to be reported?


I work as a dj and have not legally started a business. Do I still file taxes and do I need to start paying ss? taxes? I made less than 11,000 last year.


What are the steps to take if I, as a resident of the US, want to pay tax by working as a self employed person who is seeking to buy goods (clothing) from the US to export to another country.


I am self employed in the heat and air business. I have taken a big loss this year and don't know how to do the taxes. I only made 11,947.59 this past year. How much taxes do I have to pay and how do I file? I haven't done it as of yet because I don't know how to file.

I also would like to know if I can carry my stepson who is 39 but has schizophrenia and can't work. My wife is disabled and gets a very small check which barely pays the bills. So besides myself, I have the son and wife as dependents. I just need to know how to file before I go to file this year. Thanks a lot.


If you have a full time job, but also are self employed and you make less than $400 as a SE but make more than that in your regular job, do you still have to pay an SE tax even though you made less than $400 in your Self Employment?


If you are self employed but do not receive a weekly pay check, what do you do?

What if you receive rental and not a pay check?


My wife is in a partnership (two partners). She receives a K1 from their business. If she earns $10,000 in box 1, ordinary income, does she still have to pay self employment tax on income from the partnership? --babota


Everyone should read sections 1402 and 7701 of the IRC to see if your self employment is subject to the federal income tax. You may be surprised.


We are self-employed because of lengthy unemployment. We have paid no taxes this year and will most likely have a net loss. Do we qualify for an Earned Income Credit for our low income level, just about zero.


I work for a friend and need to know how much taxes to take out each week for a 1099.


I work full time for a major corporation and will earn enough to clear the 2009 FICA max contribution levels. I am doing some work on a real estate project on the side that will pay me a commission in excess of $5k for which I will receive a 1099 at year end.

Given that between my full time employer and me, I will have covered the max contributions, will I still have to pay self-employment tax on the "side job" income?


If you are self employed and have a loss, there is no self employment tax. If you make less that $400 of self employment income, there is no self employment tax.

Regarding 1099 Misc income. I do a lot of tax returns where people are given a 1099 misc instead of w-2's. You can request an IRS ruling to determine if you are actually an independent contractor, but many people are reluctant to do that because they need the job.


I am working part time for an employer that I used to work for full time 5 years ago. When it was time to file taxes, they gave me a 1099 rather than a w2, and I had to file as self employed and pay self employment taxes. I consider myself an employee. Is this legal?


The new Social Security wage base limit for 2008 is $102,000.00. To make your quarterly payments throughout the year you should use Form 1040ES. When you file your income tax return at the end of the year you will then use Schedule SE to report those taxes.

You don't need to pay self employment tax if your business had a net loss.


Do you still pay self employment tax if you have a net loss from your business?

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    • Self-employment tax is reported on Form 1040 as part of an individual's federal tax return.
      By: cphoto
      Self-employment tax is reported on Form 1040 as part of an individual's federal tax return.
    • Those who are self employed should file a 1040 form as well as a schedule SE.
      By: steheap
      Those who are self employed should file a 1040 form as well as a schedule SE.