What are the self-employment tax reporting requirements issued by the IRS? When is a taxpayer required to pay estimated taxes?
The required reporting of self employment income begins at $400 for people that are self employed. The required issuance of 1099-MISC forms to independent contractors begins at $600.
Generally, a taxpayer will not be penalized for not paying estimated taxes. For example, if you owe less than $1,000 in taxes, not if you earn $1,000. A taxpayer who has self-employment income should have a goal to be to owe $0 at the end of each year to avoid interest charges and unexpected tax bills from the IRS after filing a tax return.
Self Employment Tax Reporting Requirements
When figuring out your self-employment income, a taxpayer must add all of the 1099-MISC forms received for the year, then add all non-1099-reported income, and then put it down on a single Schedule C for each separate business.
Deducting Business Expenses While Self-Employed
For any business deductions for expenses incurred in making the money, a taxpayer must also report all expenses for the business on that single Schedule C. It is important to remember that when filing a tax return to not create a separate Schedule C for each 1099-MISC received.
For estimated tax payments (not withholdings; that’s what a W-2 earner has taken automatically), a taxpayer needs to take out 13.3%, soon again 15.3%, for the self employment tax that is due to the IRS, and also the marginal tax bracket your self employed earnings are taxed at.For example,if you’re single and make $20k a year, if you earn self employment profits of another $1k, you should make an additional estimated tax payment of 15.3%+15%=30.3%=$303.
Making Estimated Tax Payments
Estimated payments can be done online and are fairly easy to do at eftps.gov. You can set up a wire transfer with a bank routing number to pay for estimated taxes on self-employment income to the IRS. A CPA can also set up a more complex estimated tax payment system if self-employment income continues to grow.
Information from IRS about Self-Employment Tax:
- Schedule SE (pdf)
- Instructions for Schedule SE (pdf)
- Social Security Information for Members of the Clergy (Publication 517)