Form SE, Self Employment Tax

Many consultants, freelancers, and other self-employed workers mistakenly believe their tax obligations won’t change much once they leave their 9 to 5 jobs and are responsible for their own business accounting. However, once you become self-employed, you often end up with greater responsibility for small business taxes. Since you’re not an employee, you don’t have an employer to deduct taxes from every paycheck. As a result, you’re responsible for calculating taxes, making the required payments to the Internal Revenue Service (IRS), and filing the necessary tax forms yourself.

As a self-employed business owner, you must pay self-employment taxes on net business income over $400 per year. We’ll cover how self-employment taxes are calculated, how and when to pay the taxes, and the accompanying tax forms that you have to submit to the IRS. Self-employed individuals have more tax responsibilities, but understanding the rules can put you ahead of the game and save you money.

Who Has to Pay Self-Employment Taxes?

Virtually everyone who earns income in the United States must pay social security and medicare taxes. If you’re an employee, then your employer will withhold these taxes as payroll taxes from every paycheck. The employer will also pay their own portion of social security and medicare taxes. For employers and employees, these taxes are called FICA taxes after the Federal Insurance Contribution Act.

For self-employed individuals, these are called SECA taxes after the Self-Employed Contributions Act (SECA). There’s no employer-employee share of SECA taxes—the self-employed individual pays the entire share out of their net earnings. Anyone who earns over $400 in self-employment net income in a year must pay self-employment taxes. This is true even if you’re already retired or receiving social security and medicare benefits.

Independent contractors, freelancers, consultants, sole proprietors, partners in a partnership, and members of limited liability companies that are taxed as disregarded entities must pay self-employment taxes. Partners in a partnership and members of a multi-member LLC must pay self-employment taxes on their respective share of the business’s income. In most cases, corporate shareholders who actively work for the corporation are considered employees subject to FICA tax withholding.

How Much Are Self-Employment Taxes?

How Much Are Self-Employment Taxes?

The lesson to be learned from this example, is how vital it is for self employed individuals to seek out the advice of a CPA several times during the year. Even if your salary is not the $350,000 example above, there are hefty tax rates that self-employed people are subject to. It is absolutely crucial you have periodic "tax liability analysis and tax planning" several times during the year, before "the fat lady sings". After December 31st, , there is very little tax planning that can be done in NaN to reduce your tax year liability.

How to Report and Pay Self-Employment Taxes

Remember, self-employment taxes are calculated on net self-employment income. You’ll calculate your net self-employment income by starting with Schedule C. On Schedule C, you will report your total business revenue for the year, and then make any allowable business tax deductions. That will give you your taxable self-employment income that you report on form 1040.

At that point, you must fill out Schedule SE, which is a self-employment tax form that will help you figure out how much you owe in self-employment taxes. Add the result of Schedule SE to line 58 of form 1040. Although paying both the employee and employer tax rates might seem pretty hefty, there’s some good news. You get a deduction for half of your self-employment taxes. The IRS treats the “employer side” of self-employment taxes as a deductible expense to make taxes more equitable for self-employed individuals. The deduction gets reported on line 27 of form 1040.

Employers must deposit FICA taxes on a periodic basis throughout the year. Since there’s no employer for self-employed individuals, the self-employed must pay estimated taxes on a quarterly basis. Form 1040-ES will help you calculate your estimated taxes, and you can send payment through the Electronic Federal Tax Payment System (EFTPS).

The tables below show the and for self-employed individuals for and NaN:

Here are the upcoming quarterly due dates for self-employment taxes:

  • April 15, : First quarter (covering Jan. 1 to March 31)
  • June 15, : Second quarter (covering April 1 to May 31)
  • September 15, : Third quarter (covering June 1 to Aug. 31)
  • January 15, NaN: Fourth quarter (covering Sept. 1 to Dec. 31)

Make sure you put these due dates in your business calendar, to avoid paying penalties and back taxes.

Avoid Penalties on Your Self-Employment Taxes

You should always do your best to meet your self-employed tax obligations. Some of the consequences of not meeting your tax obligations are pretty severe:

  • Penalties and interest : As mentioned above, failure to make estimated tax payments as required can lead to underpayment penalties and interest. The interest continues to accrue until the balance is paid in full, even if you set up a payment plan with the IRS.

  • Backup withholding : In some cases, the IRS or your state tax agency may determine you should be subject to backup withholding. When this happens, the tax agency sends a letter to anyone you have done business with in the past, instructing them to withhold a sizable percentage of any future payments due to you. This backup withholding amount must then be remitted by the business to the tax agency.

  • Seizure of assets : Even though the IRS and your state tax agency prefer to avoid this step, they will enforce this consequence if the amount due is large enough or if you ignore their attempts to collect taxes due. The most common form of asset seizure is a tax lien on your bank account. If you owe a large amount of money for taxes and fail to make—and keep—arrangements to pay those taxes, the IRS and other tax agencies may instruct your bank to forward most or even all of the money in your bank accounts to them.

What’s the best way to avoid potential tax pitfalls? Work with a tax professional or certified public accountant (CPA). A tax professional who is privy to your entire financial situation, not just your business tax situation, can advise you on how to best fulfill your tax obligations.

At Nugent & Associates, we're not just number crunchers. We bring over 3 decades of invaluable certified public accounting and tax expertise to your company – serving as business and financial strategists who can offer such services as tax and financial planning, investment advice, diligent financial records, and help with estate planning.

Even better, we will give you time to focus on what you do best: running the day-to-day operations that drive your business toward success.

Take advantage of our FREE and no obligation business checkup.

We will visit you at your business at a time and day convenient for you, analyze your numbers, discuss your goals and concerns and report back with a complimentary detailed written analysis to help your business succeed!

At Nugent & Associates, we're not just number crunchers. Our people bring decades of invaluable certified public accounting and financial and tax expertise to you – offering tax and financial strategies to individuals such as yourself. If you have any questions or concerns about your own tax, financial or investment matters, please do not hesitate to contact us.

Experienced tax and financial experts are not just for the super rich. At a reasonable fee you too can maximize your wealth and receive professional guidance for retirement, and/or any tax issues you may be facing, no matter your situation, with a tax and financial expert as your consultant.

Contact Nugent & Associates today. We don't charge for phone calls. You may just find you found an ally in your quest to have a great financial future.

After all, at Nugent & Associates, we succeed when you succeed!



This page is intended to be informational. This website, nor any of the information contained on this site constitutes professional, business, tax or legal advice and is not a substitute for such advice nor does it create a professional-client relationship between you and Nugent & Associates.

State and federal laws change frequently, and the information in this page may not reflect your own state’s laws or the most recent changes to the law.

The information contained within this website should not be considered as a solicitation or an offer for a professional-client relationship. Materials contained in this website are of a general nature and should not be substituted for professional advice. Nugent & Associates is providing this website and the information contained herein only as a convenience to you. Nugent & Associates assumes no liability or responsibility for any errors or omissions contained within this website. There is no guarantee that the information included on this site is current, accurate, complete, useful, or reliable.

Tax Planning & Preparation

We assist our clients in individual and business tax planning throughout the year.

Nugent & Associates provides:
  • Year-Round analysis to ensure a smooth and predictable year-end close.
  • Assist in establishing retirement planning.
  • Performs in-depth review of all deductions available.

Financial Statements

Nugent & Associates offers outstanding accounting services and acts as a quasi-controller for companies who do not employ their own full-time accountants.

This allows our clients with more time to focus on new services, new customers and other core business issues.

Business Planning, Budgeting
& Growth Strategies

Nugent & Associates assists it clients with:
  • Starting a new venture, product or service
  • Expanding a current organization, product or service
  • Buying a new business, product or service
  • Turning around a declining business

QuickBooks Training
& Support Services

As Certified QuickBooks Professional Advisors, we can be of assistance with QuickBooks accounting or payroll and help increase your productivity and efficiency.