How to Know if you Need to Pay Self-Employment Tax
Do I need to pay self-employment taxes?
How do you know if you need to pay self employment tax? How much should this tax cost you? If you are looking for answers for these two questions, then follow the steps below to find out more about the self employment tax and if you need to pay it.
I. Know the Kind of Income That You Have
1.) You must be an independent contractor for you to be obliged to pay self employment taxes. Below are the characteristics of an independent contractor.
- You are paid per project or per job.
- You can work for more than one company.
- You pay for all the equipments and tools of your job.
- You are free to follow any method as long as you get the job done.
- You dictate the number of hours that you spend on the job.
2.) People who are in a partnership business are also obliged to pay self employment taxes.
3.) Unless your company is running as a corporation and as a LLC or Limited Liability Company, then you are required to pay self employment tax if you are a sole proprietor
4.) If you have some business which are not related to your day job, then you are required to pay self employment taxes as well if that business is also earning you money. Being a full-time or part-time company owner is also not an excuse for you not to pay self-employment taxes.
5.) If you are on Social Security or Medicare, then you are still required to pay self employment tax on income as long as you meet all of the criteria of a person who is self employed. You have the obligation to pay those taxes or else you would have to face possible law suits in the future.
II. Calculate Your Income
1.) Make a summary of all your income. Your summary must include every penny that you are earning from all of your other business no matter how small they may be. Be accurate with your calculations.
2.) The bottom line is that having an income is your ticket to paying self employment taxes. It doesn’t matter if you have a dying business. As long as this business puts money on your table, then you would have to pay self employment taxes whether you like it or not.