As a freelancer, understanding when to pay self-employment tax is crucial for staying compliant and avoiding penalties. Here’s a detailed guide to help you navigate this aspect of your business:
What is Self-Employment Tax: This tax covers Social Security and Medicare, which are typically withheld by employers in traditional employment. As a freelancer, you're responsible for the full amount.
Income Threshold: If your net earnings from self-employment are $400 or more in a year, you must file and pay self-employment tax.
Quarterly Payments: The IRS expects freelancers to make estimated tax payments quarterly if they anticipate owing $1,000 or more in self-employment tax for the year. The deadlines are typically April 15, June 15, September 15, and January 15 of the following year.
Calculate Your Tax: Use Schedule SE on Form 1040 or a separate Form 941 if your business is incorporated to determine your self-employment tax. This involves calculating your net earnings and applying the current tax rate (15.3% in 2024).
Deduct Expenses: Lower your taxable income by deducting eligible business expenses. Keep meticulous records of your income and expenses throughout the year.
Stay Informed: Tax laws can change, so stay updated on any modifications that may affect your obligations.
By understanding these key points, you can ensure timely and accurate payment of your self-employment taxes, helping you stay on top of your financial responsibilities.
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