Taxes Made Simple

Jan (author) writes:

I'm a full-time mother who is also pursuing a part-time (from home) career in writing and self-publishing. What is this about self-employment tax? Do I have to pay this?

Answer:

When a taxpayer works as an employee somewhere, he and his employer are required to pay social security taxes and Medicare taxes.  His portion of this tax would be withheld from his paychecks every pay period. These two taxes are equal to roughly 15% of the taxpayer's income, approximately half of it paid by the employer, and the other half paid by the employee in the form of withholdings.

However, if a taxpayer is self-employed, she ends up being subject to the Self-Employment tax, which is roughly equivalent to being on the hook for both the employee's portion and the employer's portion of the social security and Medicare taxes.  As such, the Self-Employment tax is equal to about 15% of earnings from self-employment. 

You are generally subject to the Self-Employment tax if your earnings from self employment are $400 or more.
 

For more information, see the Instructions to Schedule SE.

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