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 anemployer. Their employer deducts Social Security taxesfrom their paycheck, matches that contribution, sends taxesto the Internal Revenue Service (IRS), and reports wagesto Social Security. But self-employed people must reporttheir earnings and pay their taxes directly to IRS.

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

Paying Social Security and Medicare taxes

If you work for an employer, you and your employer eachpay a 6.2 percent Social Security tax on up to $132,900of your earnings and a 1.45 percent Medicare tax on allearnings. If you’re self-employed, you pay the combinedemployee and employer amount, which is a 12.4 percentSocial Security tax on up to $132,900 of your net earningsand a 2.9 percent Medicare tax on your entire netearnings. If your earned income is more than $200,000($250,000 for married couples filing jointly), you must pay0.9 percent more in Medicare taxes.

There are two income tax deductions that reduceyour taxes.

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

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

If you have wages, as well as self-employment earnings,the tax on your wages is paid first. But this rule onlyapplies if your total earnings are more than $132,900. Forexample, if you will have $30,000 in wages and $45,000in self-employment income in 2019, you will pay theappropriate Social Security taxes on both your wagesand business earnings. In 2019, however, if your wagesare $87,700, and you have $45,500 in net earnings froma business, you don’t pay dual Social Security taxes onearnings more than $132,900. Your employer will withhold7.65 percent in Social Security and Medicare taxes on your$87,700 in earnings. You must pay 15.3 percent in SocialSecurity 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 taxesfor a certain length of time to get Social Security benefits.The amount of time you need to work depends on yourdate of birth, but no one needs more than 10 years ofwork (40 credits).

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

We use all your earnings covered by Social Security tofigure your Social Security benefit, so, report all earnings upto the maximum, as required by law.

Figuring your net earnings

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

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

• Dividends from shares of stock and interest onbonds, unless you receive them as a dealer in stocksand securities;

• Interest from loans, unless your business islending money;

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

• Income received from a limited partnership

Optional method

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

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

• If your net income from non-farm self-employment isless than $5,717, and also less than 72.189% of yourgross non-farm income, and you had net earningsfrom self-employment of at least $400 in two of theprior three years.

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

NOTE: If you’re a farmer, you can use the optionalreporting method every year. Having actual netearnings of at least $400 in a preceding year isn’tnecessary. Also, other gross farm, net farm, andnon-farm profit amounts may change each year.

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

How to report earnings

You must complete the following federal tax forms by April15, after any year in which you have net earnings of $400or more:

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

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

• Schedule SE (Self-Employment Tax).

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

Even if you don’t owe any income tax, you must completeForm 1040 and Schedule SE to pay self-employmentSocial Security tax. This is true even if you already getSocial Security benefits.

Family business arrangements

Family members may operate a business together. Forexample, a husband and a wife may be partners or runa joint venture. If you operate a business together aspartners, you should each report your share of the businessprofits 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 eachshould report (for example 50 percent and 50 percent).Also, a husband and wife who both materially participate ina jointly owned business, and file a joint return, can makean election to be taxed as a qualified joint venture insteadof a partnership. Each must file a separate Schedule Cor C-EZ.

Contacting Social Security

The most convenient way to contact us anytime, anywhereis to visit www.socialsecurity.gov. There, you can: applyfor benefits; open a my Social Security account, which youcan use to review your Social Security Statement, verifyyour earnings, print a benefit verification letter, change yourdirect deposit information, request a replacement Medicarecard, and get a replacement SSA-1099/1042S; obtainvaluable information; find publications; get answers tofrequently asked questions; and much more.

If you don’t have access to the internet,we offer manyautomated services by telephone, 24 hours a day, 7 daysa week. Call us toll-free at 1-800-772-1213 or at our TTYnumber, 1-800-325-0778, if you’re deaf or hard of hearing.If you need to speak to a person, we can answer yourcalls from 7 a.m. to 7 p.m., Monday through Friday. Weask for your patience during busy periods since you mayexperience a higher than usual rate of busy signals andlonger hold times to speak to us. We look forward toserving you.

Social Security Administration
Publication No. 05-10022 |

 

 

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