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Do You Need to Pay Self-Employment Tax?

Many people working for one employer are classified as independent contractors rather than employees. These individuals will receive Form 1099-Misc and are treated as self-employed. If you are self-employed you also pay Social Security and Medicare taxes through self-employment tax.

This tax comes at a shock for those new to the independent contractor status (which includes a myriad of workers in office jobs as well as gig economy jobs such as driving for Uber/Lyft or making deliveries for one of the delivery apps). So make sure any contracts you sign stipulate your tax status as employee or independent contractor.

The self-employment tax rate is 15.3% and is equivalent to the employer and employee portion of Social Security and Medicare taxes. The rate consists of two parts: 12.4% for Social Security tax which is imposed on the first $132,900 (2019 limit) of self-employment income and 2.9% for Medicare tax which is imposed on all self-employment income.

On the bright side, 1/2 of the self-employment tax is deductible since employers would be able to deduct payroll taxes they pay for their employees.

For tax planning and tax projections regarding self-employment tax, contact me today.

Richard Pon CPA, CFP