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taxmap/pubs/p225-051.htm#TXMP493c1768 Chapter 12 Self-Employment Tax(p71)

Self-Employment Tax

taxmap/pubs/p225-051.htm#TXMP4006ab43 What's New for 2007(p71)

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Husband-wife farm.(p71)

Beginning in 2007, you and your spouse, if you are filing married filing jointly, may be able to make a joint election to be taxed as a qualified joint venture instead of a partnership. See Husband and wife partners under Who Must Pay Self-Employment Tax.

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Tax rates and maximum net earnings.(p71)

The maximum net self-employment earnings subject to the social security part (12.4%) of the self-employment tax increased to $97,500 for 2007. There is no maximum limit on earnings subject to the Medicare part (2.9%).

taxmap/pubs/p225-051.htm#TXMP1b0cbf5f What's New for 2008(p71)

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Maximum net earnings.(p71)

The maximum net self-employment earnings subject to the social security part (12.4%) of the self-employment tax will increase to $102,000 for 2008. There is no maximum limit on earnings subject to the Medicare part.

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Introduction

Self-employment tax (SE tax) is a social security and Medicare tax primarily for individuals who work for themselves. It is similar to the social security and Medicare taxes withheld from the pay of most wage earners.

You usually have to pay SE tax if you are self-employed. You are usually self-employed if you operate your own farm on land you either own or rent. You have to figure SE tax on Schedule SE (Form 1040).

Farmers who have employees may have to pay the employer's share of social security and Medicare taxes, as well. See chapter 13 for information on employment taxes.

taxmap/pubs/p225-051.htm#TXMP4a9e30a6 Self-employment tax rate.(p71)

The self-employment tax rate is 15.3%. The rate consists of two parts: 12.4% for social security (old-age, survivors, and disability insurance) and 2.9% for Medicare (hospital insurance).

Useful items

You may want to see:

See chapter 17 for information about getting publications and forms.

taxmap/pubs/p225-051.htm#TXMP6451f919 Why Pay Self-Employment Tax?(p71)

Self-Employment Tax

Social security benefits are available to self-employed persons just as they are to wage earners. Your payments of SE tax contribute to your coverage under the social security system. Social security coverage provides you with retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits.

taxmap/pubs/p225-051.htm#TXMP2fe63d1c How to become insured under social security.(p71)

You must be insured under the social security system before you begin receiving social security benefits. You are insured if you have the required number of credits (also called quarters of coverage).

taxmap/pubs/p225-051.htm#TXMP6b249f5d Earning credits in 2007.(p71)

You can earn a maximum of four credits per year. For 2007, you earn one credit for each $1,000 of combined wages and self-employment earnings subject to social security tax. You need $4,000 ($1,000 × 4) of combined wages and self-employment earnings subject to social security tax to earn four credits in 2007. It does not matter whether the income is earned in 1 quarter or is spread over 2 or more quarters.

For an explanation of the number of credits you must have to be insured and the benefits available to you and your family under the social security program, consult your nearest Social Security Administration (SSA) office or visit the SSA website at www.socialsecurity.gov.

Making false statements to get or to increase social security benefits may subject you to penalties.

taxmap/pubs/p225-051.htm#TXMP239f09b3 The Social Security Administration (SSA) time limit for posting self-employment earnings.(p71)

Generally, the SSA will give you credit only for self-employment earnings reported on a tax return filed within 3 years, 3 months, and 15 days after the tax year you earned the income.

If you file your tax return or report a change in your self-employment earnings after the SSA time limit for posting self-employment earnings, the SSA may change its records, but only to remove or reduce the amount. The SSA will not change its records to increase your self-employment earnings after the SSA time limit listed above.

Previous Page:  Publication 225 - Farmer's Tax Guide - Reporting Gains and Losses Next Page:  Publication 225 - Farmer's Tax Guide - How To Pay Self-Employment Tax Use   to find additional occurrences of topic items.