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Paying Self-Employment Taxes On A Quarterly and Yearly Basis

Paying Self-Employment Taxes On A Quarterly and Yearly Basis

Let’s make it clear as to who are self-employed individuals?

In order to be categorized as self-employed individual and fall under the category of paying self-employment taxes you have to one from the following:

  • According to the general rule proposed by the Internal Revenue Service, you need to be an independent contractor or a sole proprietor.
  • You should be conducting a part time business
  • The individuals should be one of the associates of a partnership set up.

What are the obligations of paying self-employment taxes?

Being a self-employed individual or an independent contractor, it is incumbent upon you that as a taxpayer, you need to pay the taxes on the basis of four times a year and file for a yearly tax return.

Along with this obligation, the self-employed individuals are expected to pay self-employment taxes along with the tax on their respective business incomes. These individuals who work for themselves need to pay self-employment taxes as they also cover the taxes related to Medicare and social security. There is a similarity in the pattern of paying of self-employment taxes and the taxes that are withheld from the pay checks of the traditional employees. 

The self-employed taxpayers should keep in mind that if they are paying self-employment taxes, only the social security and Medicare taxes come in this category and not the other taxes such as income tax. These taxes need to be paid separately at federal level.

Calculating your net profit or loss from your business setup in a prerequisite for determining whether you qualify for the paying of self-employment taxes. The self-employed individuals calculate the net profit or loss by deducting the business related overheads from the income generated by the business from all sources. The net profit emerges if the business income exceeds the expenses that are generated from the business operations. Consequently, a net loss is deduced if the business expense exceed the generated income from the business. By using the first page of form 1040, the self-employed individual can deduct their calculated loss from the gross income. However, the scenario is not static all the time and the loss is situation specific.

If the earnings from the business of self-employed individuals are $400 or exceed from this limit, then they have to file for an income tax return. And the same case is for those earnings that are below the proposed limit. The same case only applies if the self-employed individuals meet with other filing terms and requirements that are stated in the guidelines of the form 1040.

Paying self-employment taxes on quarterly basis

As the self-employed individuals do not have an employer who withholds the taxes in the paychecks for them they have to pay the estimated taxes that include Social security, income and Medicare taxes in a combined form. The form 1040 ES that entails the details regarding the estimated tax for self-employed individuals is used to calculate these taxes. This form has the same worksheet like format like that of Form 1040. In order to correctly fill in all the requirements of the Form 1040 ES, the self-employed individual has to state his previous year’s twelve-monthly tax return information.

Paying self-employment taxes through annual filing

It is incumbent upon the self-employed individuals to make use of Schedule C or Schedule CZ to file for their yearly tax return and state the net profit or loss from the business that they have established or the profession that are practicing as a sole proprietor. The self-employed taxpayers will find the guidelines listed in Schedule C of great use while filing for the annual tax return and filling out the form correctly.

Small scale businesses and independent contractors who under the legalities of the US law are treated as an employee for the tax withholding purposes will file Schedule CZ in their annual tax return if their business or profession practicing expenses are below the proposed limit of $5000.

The self-employed individuals are also expected to file an information return to the Internal Revenue Service if they have made or acquire the payments in accordance with their practicing profession or the business they operate.

These are all the necessary guidelines regarding paying self-employment taxes on a quarterly or yearly basis. Still the self-employed taxpayers are advised to find a tax preparer or an accountant for further details.











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