Self-Employed

Being self-employed can bring individuals great rewards and freedoms, yet it also brings great responsibility to ensure you comply with the rules and requirements of the IRS.

Are You Self-employed?

You are considered self-employed and subject to self-employment tax laws if you:

• carry on your own trade or business
• have a profit motivation for your business activity
• operate your business in a regular manner
• are a sole proprietor
• are an independent contractor
• work full or part-time in the business endeavor
• have a net profit of $400.00 or more
• have a net profit of $100.00 or more as an employee of a church electing exemption from Social Security Withholdings

Self-Employment Tax

All self-employed must pay a self-employment tax in addition to income tax. The tax is 15.3% of net earnings and has two components; a 12.4% old age, survivors and disability insurance (OASDI) tax and a 2.9% component for hospital insurance (Medicare). The 12.4% OASDI portion is paid on net income (revenues less expenses) up to a set amount similar to social security. The 2.9% Medicare tax is paid on all net income. If you receive any wage income on which Social Security or Railroad Retirement taxes were paid then the self-employment tax income maximum is reduced by the amount of wages received. If self-employment income is below $400 no self-employment tax is due.

What is Self-employment Income?

• Income received from a trade or business you conduct on a continuous and regular basis less allowable deductions
• Payments received from your partnership for services rendered
• Income paid by insurance companies to retired insurance agents based on prior work such as unpaid commissions
• Real estate rental income if substantial services are rendered
• Extended earnings payments to an independent insurance agent
• Minister's housing allowances unless Form 4361 is filed to opt out of Social Security (not subject to income tax)
• Income of employees of a church or church-controlled organization
• Income from independent contracting of services
• Income from street hustling, panhandling, and drug dealing
• Income from commercial fishing if working for share of the catch
• Foreign earned income excluded from income tax
• Income from selling and distributing newspapers and magazines
• Business interruption insurance payments
• Crop-sharing income

What’s Not Self-employment Income?

• Income received as an employee of another company
• Income paid to your child if under 18 and your business is a sole proprietorship or partnership
• Dividends and interest
• Gain or loss from sale or exchange of capital assets or disposition of property not included as inventory or held for sale
• Incentive pay to sales people in a dealership (auto dealer) but paid by the manufacturer
• Earnings and dividends of an S Corporation provided shareholders take a reasonable salary
• Income for services not performed on a continuous or regular basis (this is deemed a hobby)

Self Employment Income/Expense Tracking Worksheet (PDF)
To download the PDF, right click the link above and select the "save as" option