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Publication 334

Self-Employment (SE) Tax(p8)

Self-employment tax (SE tax) is a social security and Medicare tax primarily for individuals who work for themselves. It is similar to the social security and Medicare taxes withheld from the pay of most wage earners.
If you earned income as a statutory employee, you do not pay SE tax on that income. Social security and Medicare tax should already have been withheld from those earnings.

Social security coverage.(p8)

Social security benefits are available to self-employed persons just as they are to wage earners. Your payments of SE tax contribute to your coverage under the social security system. Social security coverage provides you with retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits.
By not reporting all of your self-employment income, you could cause your social security benefits to be lower when you retire.
How to become insured under social security.(p9)
You must be insured under the social security system before you begin receiving social security benefits. You are insured if you have the required number of credits (also called quarters of coverage), discussed next.
Earning credits in 2016 and 2017.(p9)
For 2016, you received one credit, up to a maximum of four credits, for each $1,260 ($1,300 for 2017) of income subject to social security taxes. Therefore, for 2016, if you had income (self-employment and wages) of $5,040 that was subject to social security taxes, you receive four credits ($5,040 ÷ $1,260).
For an explanation of the number of credits you must have to be insured and the benefits available to you and your family under the social security program, consult your nearest Social Security Administration (SSA) office.
Making false statements to get or to increase social security benefits may subject you to penalties.

The Social Security Administration (SSA) time limit for posting self-employment income.(p9)

Generally, the SSA will give you credit only for self-employment income reported on a tax return filed within 3 years, 3 months, and 15 days after the tax year you earned the income. If you file your tax return or report a change in your self-employment income after this time limit, the SSA may change its records, but only to remove or reduce the amount. The SSA will not change its records to increase your self-employment income.

Who must pay self-employment tax.(p9)

You must pay SE tax and file Schedule SE (Form 1040) if either of the following applies.
  1. Your net earnings from self-employment (excluding church employee income) were $400 or more.
  2. You had church employee income of $108.28 or more.
The SE tax rules apply no matter how old you are and even if you are already receiving social security or Medicare benefits.

SE tax rate.(p9)

The SE tax rate on net earnings is 15.3% (12.4% social security tax plus 2.9% Medicare tax).

Maximum earnings subject to SE tax.(p9)

Only the first $118,500 of your combined wages, tips, and net earnings in 2016 is subject to any combination of the 12.4% social security part of SE tax, social security tax, or the Tier 1 part of railroad retirement tax.
All your combined wages, tips, and net earnings in 2016 are subject to any combination of the 2.9% Medicare part of SE tax, Medicare tax, or Medicare part of railroad retirement tax.
If wages and tips you receive as an employee are subject to either social security or the Tier 1 part of railroad retirement tax, or both, and total at least $118,500, do not pay the 12.4% social security part of the SE tax on any of your net earnings. However, you must pay the 2.9% Medicare part of the SE tax on all your net earnings.
Deduct one-half of your SE tax as an adjustment to income on line 27 of Form 1040.

Additional Medicare Tax.(p9)

A 0.9% Additional Medicare Tax may apply to you if your net earnings from self employment exceeds one of the following threshold amounts (based on your filing status).
If you have both wages and self-employment income, the threshold amount for applying the Additional Medicare Tax on the self-employment income is reduced (but not below zero) by the amount of wages subject to Additional Medicare Tax. Use Form 8959, Additional Medicare Tax, to figure this tax.

More information.(p9)

For information on methods of calculating SE tax, see chapter 10.

Table 1-2. Which Forms Must I File?

IF you are liable for:THEN use Form:DUE by:1
Income tax1040 and Schedule C or C-EZ215th day of 4th month after end of
tax year.
Self-employment taxSchedule SEFile with Form 1040.
Estimated tax1040-ES15th day of 4th, 6th, and 9th months of tax year, and 15th day of 1st month after the end of tax year.
Social security and Medicare taxes and income tax withholding941 or 944April 30, July 31, October 31, and January 313.
  See Pub. 15.
Providing information on social security and Medicare taxes and income tax withholdingW-2 (to employee)

W-2 and W-3 (to the Social Security Administration)
January 313.

January 313.
Federal unemployment (FUTA) tax940January 313.
  April 30, July 31, October 31, and January 31, but only if the liability for unpaid tax is more than $500.
Filing information returns for payments to nonemployees and transactions with other personsSee Information ReturnsForms 1099 – to the recipient by January 31 and to the IRS by February 28 (March 31 if filing electronically).
  Other forms – see the General Instructions for Certain Information Returns.
Excise taxSee Excise TaxesSee the instructions to the forms.
1 If a due date falls on a Saturday, Sunday, or legal holiday, file by the next day that is not a Saturday, Sunday, or legal holiday. For more information, see Pub. 509, Tax Calendars.
2 File a separate schedule for each business.
3 See the form instructions if you go out of business, change the form of your business, or stop paying wages.