Page 15 - Small Business Taxes

16:29 - 11-Jan-2023
Page 9 of 53
Fileid: … tions/p334/2022/a/xml/cycle03/source
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
b. You receive immediate confirmation of every self-employment income reported on a tax return filed
transaction. within 3 years, 3 months, and 15 days after the tax year
you earned the income. If you file your tax return or report
Penalty for underpayment of tax. If you did not pay a change in your self-employment income after this time
enough income tax and self-employment tax for 2022 by limit, the SSA may change its records, but only to remove
withholding or by making estimated tax payments, you or reduce the amount. The SSA will not change its records
may have to pay a penalty on the amount not paid. The to increase your self-employment income.
IRS will figure the penalty for you and send you a bill. Or
you can use Form 2210, Underpayment of Estimated Tax Who must pay SE tax. You must pay SE tax and file
by Individuals, Estates, and Trusts, to see if you have to Schedule SE (Form 1040) if either of the following applies.
pay a penalty and to figure the penalty amount. For more
information, see Pub. 505. 1. Your net earnings from self-employment (excluding
church employee income) were $400 or more.

Self-Employment (SE) Tax 2. You had church employee income of $108.28 or
more.
SE tax is a social security and Medicare tax primarily for The SE tax rules apply no matter how old you are
individuals who work for themselves. It is similar to the so- ! and even if you are already receiving social secur-
cial security and Medicare taxes withheld from the pay of CAUTION ity or Medicare benefits.
most wage earners.
If you earned income as a statutory employee, SE tax rate. The SE tax rate on net earnings is 15.3%
(12.4% social security tax plus 2.9% Medicare tax).
! you do not pay SE tax on that income. Social se-
CAUTION curity and Medicare tax should have already been Maximum earnings subject to SE tax. Only the first
withheld from those earnings. $147,000 of your combined wages, tips, and net earnings
in 2022 is subject to any combination of the 12.4% social
Social security coverage. Social security benefits are security part of SE tax, social security tax, or the Tier 1
available to self-employed persons just as they are to part of railroad retirement tax.
wage earners. Your payments of SE tax contribute to your All your combined wages, tips, and net earnings in
coverage under the social security system. Social security 2022 are subject to any combination of the 2.9% Medicare
coverage provides you with retirement benefits, disability part of SE tax, Medicare tax, or Medicare part of railroad
benefits, survivor benefits, and hospital insurance (Medi- retirement tax.
care) benefits. If wages and tips you receive as an employee are sub-
Be sure to report all of your self-employment in- ject to either social security tax or the Tier 1 part of rail-
road retirement tax, or both, and total at least $147,000,
! come. By not reporting all of it, you could cause do not pay the 12.4% social security part of the SE tax on
CAUTION your social security benefits to be lower when you any of your net earnings. However, you must pay the
retire. 2.9% Medicare part of the SE tax on all your net earnings.
How to become insured under social security. You Deduct one-half of your SE tax as an adjustment
must be insured under the social security system before TIP to income on line 15 of Schedule 1 (Form 1040).
you begin receiving social security benefits. You are in-
sured if you have the required number of credits (also
called quarters of coverage), discussed next. Additional Medicare Tax. A 0.9% Additional Medicare
Earning credits in 2022 and 2023. For 2022, you re- Tax may apply to you if your net earnings from self-em-
ceived one credit, up to a maximum of four credits, for ployment exceed one of the following threshold amounts
each $1,510 ($1,640 for 2023) of income subject to social (based on your filing status).
security taxes. Therefore, for 2022, if you had income • Married filing jointly—$250,000
(self-employment and wages) of $6,040 that was subject
to social security taxes, you receive four credits ($6,040 ÷ • Married filing separately—$125,000
$1,510). • Single, Head of household, or Qualifying surviving
For an explanation of the number of credits you must spouse—$200,000
have to be insured and the benefits available to you and If you have both wages and self-employment income,
your family under the social security program, consult your the threshold amount for applying the Additional Medicare
nearest SSA office. Tax on the self-employment income is reduced (but not
Making false statements to get or to increase so- below zero) by the amount of wages subject to Additional
! cial security benefits may subject you to penal- Medicare Tax. Use Form 8959, Additional Medicare Tax,
CAUTION ties. to figure this tax.
The SSA time limit for posting self-employment in- More information. For information on methods of calcu-
lating SE tax, see chapter 10.
come. Generally, the SSA will give you credit only for

Chapter 1 Filing and Paying Business Taxes Page 9