Self-employed individuals generally must pay self-employment tax (SE tax) as well as income tax. SE tax is a Social Security and Medicare tax primarily for individuals who work for themselves. It is similar to the Social Security and Medicare taxes withheld from the pay of most wage earners. In general, anytime the wording “self-employment tax” is used, it only refers to Social Security and Medicare taxes and not any other tax (like income tax).
How to make quarterly payments
Use the worksheet found in Form 1040-ES, Estimated Tax for Individuals to find out if you are required to file quarterly estimated tax. Form 1040-ES also contains blank vouchers you can use when you mail your estimated tax payments or you may make your payments using the Electronic Federal Tax Payment System (EFTPS-https://www.eftps.gov/eftps. The Electronic Federal Tax Payment System® tax payment service is provided free by the U.S. Department of the Treasury. After you’ve enrolled and received your credentials, you can pay any tax due to the Internal Revenue Service (IRS) using this system.)
If this is your first year being self-employed, you will need to estimate the amount of income you expect to earn for the year.
You have to file an income tax return if your net earnings from self-employment were $400 or more. If your net earnings from self-employment were less than $400, you still have to file an income tax return if you meet any other filing requirement listed in the Form 1040 instructions.
How to file an Annual Return.
To file your annual tax return, you will need to use Schedule C or Schedule C-EZ to report your income or loss from a business you operated or a profession you practiced as a sole proprietor.
Small businesses and statutory employees with expenses of $5,000 or less may be able to file Schedule C-EZ instead of Schedule C.
In order to report your Social Security and Medicare taxes, you must file Schedule SE (Form 1040), Self-Employment Tax . Use the income or loss calculated on Schedule C or Schedule C-EZ to calculate the amount of Social Security and Medicare taxes you should have paid during the year.
Husband and Wife Business
A spouse is considered an employee if there is an employer/employee type of relationship, i.e., the first spouse substantially controls the business in terms of management decisions and the second spouse is under the direction and control of the first spouse. If such a relationship exists, then the second spouse is an employee subject to income tax and FICA (Social Security and Medicare) withholding. However, if the second spouse has an equal say in the affairs of the business, provides substantially equal services to the business, and contributes capital to the business, then a partnership type of relationship exists and the business’s income should be reported on Form 1065, U.S. Return of Partnership Income.
One spouse employed by another
The wages for the services of an individual who works for his or her spouse in a trade or business are subject to income tax withholding and social security and Medicare taxes, but not to FUTA tax.
Covered services of a spouse
The wages for the services of a spouse are subject to income tax withholding as well as social security, Medicare, and FUTA taxes if he or she works for:
* A corporation, even if it is controlled by the individual’s spouse, or
* A partnership, even if the individual’s spouse is a partner.