Is there a threshold for self-employment taxes?

October 6, 2009 3:01 PM

I'm earning maybe $4,000 this year, of which $2,000 is as self-employed. Do I still have to pay around $300 in taxes?

I'm wondering about the taxes for self-employment (I'm a U.S. citizen). I'm on track to make maybe $4,000 this year total, I expect to receive $2,000 of that total in the near future for work I did while self-employed.

While the funds will be transferred to my bank account in the country where I am currently located, I was looking at the tax forms and was surprised. Not only are there the "normal" taxes on the 1040 (which may amount to zero this year), but regardless of my total income, I still pay a bit under 15% (around $300, calculated from the $2000) for self-employment taxes above and beyond any other taxes. This would be quite a hit for me -- can anybody please offer some guidance? Is there any respite for self-employed people with a very low income?

posted by anonymous to Work & Money (4 answers total)

The self-employment tax applies to net earnings of $400 or more, so yes, you have to pay it. It's not income tax, but rather a payroll tax for Social Security and Medicare (i.e. FICA). It amounts to 15.3% of your net earnings. You can deduct half of that tax from your taxable income, but that likely doesn't help you because your income is probably already too low for you to owe any income tax.

Note that Social Security & Medicare are withheld from your regular employment earnings as well except that only something like 8.5% is withheld. The rest is paid by your employer, but of course in the end it just comes out of your paycheck. You may also be unpleasantly surprised to learn that you won't get that money back, even if you owe no income tax or would otherwise receive a refund of income tax withheld.
posted by jedicus at 3:10 PM on October 6, 2009

I should say my advice assumes that money was earned in the US and is only taxed in the US. If you owe tax in the country you're currently in then the question becomes much more complicated. If that's the case, you should contact a site moderator to post which other country you may tax in.
posted by jedicus at 3:15 PM on October 6, 2009

Do you file a Schedule C? Can you deduct some business expenses? What about doing a payment plan? On an amount that (relatively) low, the interest isn't going to mount up.
posted by Sidhedevil at 3:17 PM on October 6, 2009

If you haven't already, see if you qualify for the Earned Income Tax Credit, "designed to encourage low-income workers and offset the burden of U.S. payroll taxes."
posted by Knappster at 7:54 PM on October 6, 2009