What is Self-Employment Tax and What are The Rates for 2019?

self-employment tax 2019

If you work for yourself or have your own business, you are probably all too familiar with the headache that is filing your business taxes. On top of the fact that it can be complex to calculate them, it changes every year.

Fortunately, if you have a plan in place, you can easily file your self-employment tax 2019 and predict what you’ll have to pay. This handy guide will tell you how.

What Defines “Self-Employment”?

Simply put, a self-employed person is legally defined as someone who does not work for a specific employer who pays them a salary or wage. Self-employed individuals, also known as independent contractors, do business directly with clients. The IRS defines self-employed individuals as independent contractors, sole proprietors of businesses, and individuals engaged in partnerships. Additionally, you are considered self-employed if you made $400 or more in net earnings from self-employment or $108.28 or more for church employee income.

What is the Self-Employment Tax?

The self-employed tax is a special tax filing for individuals who are self-employed. The tax accounts for social security and Medicaid. Those who consider themselves self-employed are required to submit taxes for themselves using the 1040 form Schedule through the IRS.

In a traditional W2 employee relationship, most of the burden falls on the employer to pay Medicaid and social security. For the self-employed, all the tax burden falls solely on the independent contractor's shoulders, causing it to be higher than a salary or wage job.

How to Calculate Your 2019 Self-Employment Tax Rate

The IRS states that the self-employment tax 2019 rate is 15.3 percent on the first $132,900 of net income plus 2.9 percent on the net income in excess of $132,900.

Ultimately, for the self-employment tax 2019, you’ll have to pay both portions of employer and employee social security and Medicare, which breaks down as follows:

  • The employee's portion of the Social Security tax, which is 6.2 percent of the first $132,900 of net income
  • The employer's portion of the Social Security tax, which is 6.2 percent of the first $132,900 of net income
  • The employee's portion of the Medicare tax, which is 1.45 percent of all net income (no cap or limit on net income)
  • The employer's portion of the Medicare tax, which is 1.45 percent of all net income (no cap or limit on net income)

Self-Employment Tax Deductions

It’s no secret that people who are self-employed pay much more in taxes. However, you do have the luxury of deductions and cuts when calculating your net income for self-employment tax 2019.

The most common 1099 tax deductions for the self-employed are:

  1. Educational Expenses and Materials
  2. Home Office
  3. Travel
  4. Outrageous Costumes (If you’re a performer)
  5. Office Supplies and Equipment
  6. Licenses and Permits
  7. Work From Other 1099 Contractors
  8. Advertising and Promotional Materials

The good news is that we’re starting to move toward a society that better nurtures the self-employed individual. There are countless resources you can refer to in order to educate yourself about the self-employment tax 2019 and create your best case self-employment scenario.

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