Many people work for an employer and have taxes automatically taken out of their paychecks. This makes tax time much easier as they simply have to wait for their W-2 to be sent to them in January each year.  What you may not realize is that your employer only withholds half of the total taxes due out of each of your paychecks.  The other half is paid directly by the employer.   If you are self employed, you become responsible for paying the entire tax amount on your income as you are the employer and employee.

Self employed includes being an independent contractor, self employed, a partner in a partnership, or a sole proprietor.  Under the law if you make more than $400 while being self employed you are responsible for paying SECA tax.  (Self-Employment Contributions Act) this is similar to the FICA taxes.  This includes Social Security and Medicare taxes.  These rules also apply if you are church employee and make more than $108.28

The rates include 12.4% Social Security tax and 2.9% Medicare tax which is a total of 15.3% of any income over $400 (or $108.28 if you are a church employee).

You can use Schedule SE Form 1040 to calculate your self-employment tax, contact a tax professional or use professional tax software programs like TurboTax and TaxCut.

There are some limits on the Social Security tax.  You are only required to pay the 12.4% on the first $106,800 of your net earnings.  There are no minimums or maximums on Medicare taxes.

Be aware that the Self Employment tax is in addition to regular income taxes that you will also be responsible to pay.  These include the standard federal and state income taxes.

You would be wise to hire a tax professional to assist you with self employment taxes.  There are very specific rules and requirements that must be met.  A tax professional will be able to look at your specific situation and find the best deductions and savings available.  Remember tax laws change often and it is difficult for the average self employed person to be able to keep up with all the changes and abide by them.

Being delinquent on self employment taxes could result in the loss of your business! The IRS takes this very seriously and uses very aggressive collection methods.  They can issue a lien and levy against your assets.  Many delinquent taxpayers have lost everything due to extremely high penalties and interest.  It is in your best interest to contact the IRS as soon as you realize that you will not be able to pay your taxes by the due date.

The IRS is much more willing to work with those that are proactive! They will work out a payment arrangement with monthly installments in order to assist you with paying your taxes.  The longer you procrastinate the less willing the IRS will be to work with you!  They can freeze your bank accounts, seize your assets and close you down forever!