Self-Employed



Social Security

SSA Publication No. 05-10022
January 2019
(Recycle prior editions)

 

If You're Self-Employed

Most people who pay into Social Security work for an
employer. Their employer deducts Social Security taxes
from their paycheck, matches that contribution, sends taxes
to the Internal Revenue Service (IRS), and reports wages
to Social Security. But self-employed people must report
their earnings and pay their taxes directly to IRS.

You’re self-employed if you operate a trade, business or
profession, either by yourself or as a partner. You report
your earnings for Social Security when you file your federal
income tax return. If your net earnings are $400 or more in
a year, you must report your earnings on Schedule SE, in
addition to the other tax forms you must file.

Paying Social Security and Medicare taxes

If you work for an employer, you and your employer each
pay a 6.2 percent Social Security tax on up to $132,900
of your earnings and a 1.45 percent Medicare tax on all
earnings. If you’re self-employed, you pay the combined
employee and employer amount, which is a 12.4 percent
Social Security tax on up to $132,900 of your net earnings
and a 2.9 percent Medicare tax on your entire net
earnings. If your earned income is more than $200,000
($250,000 for married couples filing jointly), you must pay
0.9 percent more in Medicare taxes.

There are two income tax deductions that reduce
your taxes.

First, your net earnings from self-employment are reduced
by half the amount of your total Social Security tax. This
is similar to the way employees are treated under the tax
laws, because the employer’s share of the Social Security
tax is not considered wages to the employee.

Second, you can deduct half of your Social Security tax on
IRS Form 1040. But the deduction must be taken from your
gross income in determining your adjusted gross income. It
cannot be an itemized deduction and must not be listed on
your Schedule C.

If you have wages, as well as self-employment earnings,
the tax on your wages is paid first. But this rule only
applies if your total earnings are more than $132,900. For
example, if you will have $30,000 in wages and $45,000
in self-employment income in 2019, you will pay the
appropriate Social Security taxes on both your wages
and business earnings. In 2019, however, if your wages
are $87,700, and you have $45,500 in net earnings from
a business, you don’t pay dual Social Security taxes on
earnings more than $132,900. Your employer will withhold
7.65 percent in Social Security and Medicare taxes on your
$87,700 in earnings. You must pay 15.3 percent in Social
Security and Medicare taxes on your first $45,200 in self-employment earnings, and 2.9 percent in Medicare tax on the remaining $300 in net earnings.

Work credits

You must have worked and paid Social Security taxes
for a certain length of time to get Social Security benefits.
The amount of time you need to work depends on your
date of birth, but no one needs more than 10 years of
work (40 credits).

In 2019, if your net earnings are $5,440 or more, you earn
the yearly maximum of four credits — one credit for each
$1,360 of earnings during the year. If your net earnings
are less than $5,440, you still may earn credit by using the
optional method described later in this fact sheet.

We use all your earnings covered by Social Security to
figure your Social Security benefit, so, report all earnings up
to the maximum, as required by law.

Figuring your net earnings

Net earnings for Social Security are your gross earnings
from your trade or business, minus your allowable business
deductions and depreciation.

Some income doesn’t count for Social Security and
shouldn’t be included in figuring your net earnings:

• Dividends from shares of stock and interest on
bonds, unless you receive them as a dealer in stocks
and securities;

• Interest from loans, unless your business is
lending money;

• Rentals from real estate, unless you’re a real estate
dealer or regularly provide services mostly for the
convenience of the occupant; or

• Income received from a limited partnership

Optional method

If your actual net earnings are less than $400, your
earnings can still count for Social Security under an optional
method of reporting. You can use the optional method
when you have income from farming, non-farm income, or
a combination from both. You can use the optional method
only five times in your life when reporting non-farm income.
There is no limit on using the optional method of reporting
farm income. Here is how it works:

• If your gross income from farm self-employment was not
more than $7,920 or your net farm profits were less than
$5,717, you may report the smaller of two-thirds (2/3) of
gross farm income (not less than 0) or $5,280; or

• If your net income from non-farm self-employment is
less than $5,717, and also less than 72.189% of your
gross non-farm income, and you had net earnings
from self-employment of at least $400 in two of the
prior three years.

• You can use both the farm and non-farm methods of
reporting, and can report less than your total actual net
earnings from farm and non-farm self-employment,
but you can’t report less than your actual net earnings
from non-farm self-employment alone. If you use both
methods to figure net earnings, you can’t report more
than $5,280.

NOTE: If you’re a farmer, you can use the optional
reporting method every year. Having actual net
earnings of at least $400 in a preceding year isn’t
necessary. Also, other gross farm, net farm, and
non-farm profit amounts may change each year.

For additional information, read Tax Guide for Small
Business (IRS Publication No. 334) and IRS Schedule SE
at www.irs.gov or call 1-800-829-4933.

How to report earnings

You must complete the following federal tax forms by April
15, after any year in which you have net earnings of $400
or more:

• Form 1040 (U.S. Individual Income Tax Return);

• Schedule C (Profit or Loss from Business) or Schedule
F (Profit or Loss from Farming) as appropriate; and

• Schedule SE (Self-Employment Tax).

You can get these forms from the IRS on their website at
www.irs.gov. Send the tax return and schedules, along
with your self-employment tax, to the IRS.

Even if you don’t owe any income tax, you must complete
Form 1040 and Schedule SE to pay self-employment
Social Security tax. This is true even if you already get
Social Security benefits.

Family business arrangements

Family members may operate a business together. For
example, a husband and a wife may be partners or run
a joint venture. If you operate a business together as
partners, you should each report your share of the business
profits as net earnings on separate self-employment returns
(Schedule SE), even if you file a joint income tax return.
The partners must decide the amount of net earnings each
should report (for example 50 percent and 50 percent).
Also, a husband and wife who both materially participate in
a jointly owned business, and file a joint return, can make
an election to be taxed as a qualified joint venture instead
of a partnership. Each must file a separate Schedule C
or C-EZ.

Contacting Social Security

The most convenient way to contact us anytime, anywhere
is to visit www.socialsecurity.gov. There, you can: apply
for benefits; open a my Social Security account, which you
can use to review your Social Security Statement, verify
your earnings, print a benefit verification letter, change your
direct deposit information, request a replacement Medicare
card, and get a replacement SSA-1099/1042S; obtain
valuable information; find publications; get answers to
frequently asked questions; and much more.

If you don’t have access to the internet,we offer many
automated services by telephone, 24 hours a day, 7 days
a week. Call us toll-free at 1-800-772-1213 or at our TTY
number, 1-800-325-0778, if you’re deaf or hard of hearing.
If you need to speak to a person, we can answer your
calls from 7 a.m. to 7 p.m., Monday through Friday. We
ask for your patience during busy periods since you may
experience a higher than usual rate of busy signals and
longer hold times to speak to us. We look forward to
serving you.

Social Security Administration
Publication No. 05-10022 |

 

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