Page 11 - Tax Guide for Small Business

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Be sure to report all of your self-employment in- The SE tax rules apply no matter how old you are
! come. By not reporting all of it, you could cause ! and even if you are already receiving social secur-
CAUTION your social security benefits to be lower when you CAUTION ity or Medicare benefits.
retire.
SE tax rate. The SE tax rate on net earnings is 15.3%
How to become insured under social security. You (12.4% social security tax plus 2.9% Medicare tax).
must be insured under the social security system before
you begin receiving social security benefits. You are in- Maximum earnings subject to SE tax. Only the first
sured if you have the required number of credits (also $132,900 of your combined wages, tips, and net earnings
called quarters of coverage), discussed next. in 2019 is subject to any combination of the 12.4% social

Earning credits in 2019 and 2020. For 2019, you re- security part of SE tax, social security tax, or the Tier 1
ceived one credit, up to a maximum of four credits, for part of railroad retirement tax.
All your combined wages, tips, and net earnings in
each $1,360 ($1,410 for 2020) of income subject to social
security taxes. Therefore, for 2019, if you had income 2019 are subject to any combination of the 2.9% Medicare
part of SE tax, Medicare tax, or Medicare part of railroad
(self-employment and wages) of $5,440 that was subject
to social security taxes, you receive four credits ($5,440 ÷ retirement tax.
If wages and tips you receive as an employee are sub-
$1,360).
For an explanation of the number of credits you must ject to either social security or the Tier 1 part of railroad re-
have to be insured and the benefits available to you and tirement tax, or both, and total at least $132,900, do not
your family under the social security program, consult your pay the 12.4% social security part of the SE tax on any of
your net earnings. However, you must pay the 2.9% Medi-
nearest Social Security Administration (SSA) office. care part of the SE tax on all your net earnings.
Making false statements to get or to increase so- Deduct one-half of your SE tax as an adjustment
! cial security benefits may subject you to penal- to income on line 14 of Schedule 1 (Form 1040 or
CAUTION ties. TIP 1040-SR).
The Social Security Administration (SSA) time limit
for posting self-employment income. Generally, the Additional Medicare Tax. A 0.9% Additional Medicare
Tax may apply to you if your net earnings from self-em-
SSA will give you credit only for self-employment income
reported on a tax return filed within 3 years, 3 months, and ployment exceeds one of the following threshold amounts
(based on your filing status).
15 days after the tax year you earned the income. If you
file your tax return or report a change in your self-employ- • Married filing jointly—$250,000
ment income after this time limit, the SSA may change its • Married filing separately—$125,000
records, but only to remove or reduce the amount. The
SSA will not change its records to increase your self-em- • Single, Head of Household, or Qualifying
ployment income. Widow(er)—$200,000
If you have both wages and self-employment income,
Who must pay self-employment tax. You must pay SE the threshold amount for applying the Additional Medicare
tax and file Schedule SE (Form 1040 or 1040-SR) if either Tax on the self-employment income is reduced (but not
of the following applies. below zero) by the amount of wages subject to Additional
1. Your net earnings from self-employment (excluding Medicare Tax. Use Form 8959, Additional Medicare Tax,
church employee income) were $400 or more. to figure this tax.
2. You had church employee income of $108.28 or More information. For information on methods of calcu-
more. lating SE tax, see chapter 10.

Chapter 1 Filing and Paying Business Taxes Page 9