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Methods
for figuring net earnings
There
are three ways to figure net earnings from self-employment.
- The
regular method
- The
nonfarm optional method
- The
farm optional method
You
must use the regular method unless you are eligible
to use one or both of the optional methods. Multiply
your set SE income by 92.35% (.9235) to get your
net earnings under the regular method.
SE
tax rate
The
SE tax rate on net earnings is 15.3% (12.4% social
security tax plus 2.9% Medicare tax).
Maximum
earnings subject to SE tax
Only
the first $76,200 of your combined wages, tips,
and net earnings in 2000 is subject to any combination
of the 12.4% social security part of SE tax or
social security tax.
All
your combined wages, tips, and net earnings in
2000 are subject to any combination of the 2.9%
Medicare part of SE tax or social security tax.
If
your wages and tips are subject to social security
and total at least $76,200, you do not have to
pay the 12.4% social security part of the SE tax
on any of your net earnings. However, you
must pay the 2.9% Medicare part of the SE
tax on all your net earnings.
Employment
Taxes
If
you have employees, you will need to file forms
to report employment taxes. Employment taxes
include the following items.
w
Social security and Medicare taxes.
w
Federal income tax withholding.
w
Federal unemployment (FUTA) tax
If
you incorrectly classify an employee s an independent
contractor you can be held liable for employment
taxes for that worker plus a penalty.
An
independent contractor is someone who is
self-employed. You do not generally have to withhold
or pay any taxes on payments to an independent
contractor.
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