Self-employed workers in the US generally are required to file an annual return and pay an estimated quarterly tax.
Freelancers and other self-employed professionals must generally pay self-employed (SE Tax) as well as income tax. SE tax a primarily a social security and Medicare tax for individuals who work for themselves.
Medicare and Social Security for Self-Employed
The majority of people who pay into social security work for an employer- their employer deducts the amount from their paycheck. Self-employed people must independently report their earnings and pay their taxes directly to the US.
The IRS regard you as self-employed if you operate a trade, business or profession either by yourself or as a partner. Your earnings for Social Security should be reported when you file your federal income tax return.
For employed workers, 6.2% of up to $128,400 of earnings and a 1.45% Medicare tax on all earnings
For self-employed workers, 12.4% social security tax is paid on earnings up to $128,000 of net earnings and 2.9% Medicare tax on entire net earnings. The higher rate is due to the tax being taken as a combination of employer and employee tax.
For self-employed workers who have earned more than $200,000 ($250,000 as a married couple filing jointly), 0.9% more tax must be paid in Medicare.
Determining if you are subject to Self employed and income tax
Before you can determine if you are subject to self-employment tax and income tax you must figure your net profit or net loss from your business. This can be done by subtracting your business expenses from your business income; if your expenses are less than your income the difference is judged as a net profit and should be included on page 1 of form 1040. If your expenses are more than your income, the difference is judged as a net loss, and should deducted from your gross income on page 1 of your 1040 return.
As an accountant with over 10 years experiences accounting for US Expats and non-resident aliens based in the UK, we are expert in advising about all matters surrounding US tax.
This article is aimed to break down the US tax rates, penalties and interest US Expats and non-resident aliens should be aware of.
Succeeding President Donald Trump’s signing of the Tax Cuts and Jobs Act (TCJA) in 2017, the US transfer tax system has seen its most significant reform in over 30 years. Transfer tax comprises gift tax; on property transferred during lifetime, and estate tax; imposed on property transferred at death, and under the TCJA, the exclusion rates of these taxes have doubled from $5.49 million to $11.18 million for individual US citizens. These increased tax inclusions are very generous to US citizens, protecting the majority of them from transfer tax, but these new laws do not apply to non-US citizens or those non-domiciled (non-US persons for ease of reference) meaning they remain subject to estate and gift tax.
Following on from yesterdays article ‘Do you need to file a US Tax Return? (For those living outside of the U.S.’, we progress to break down the filing and paying aspects of US tax as a US expat or resident Alien.
U.S. Tax can be a daunting subject for Americans within the U.S.A, let alone for those living outside of America with U.S. tax obligations. This article aims to help you establish whether you are required to file a tax return.
With the passing of the recent US Expat tax deadline in mind, we have put together an article summarising some of the main penalties that Americans living in the UK may be subject to if they are not compliant. We also offer advice on how to avoid these penalties.
The Tariffs introduced on imported goods, by President Trump back in March, have shaken the fashion world.
US expats are required to file a US federal tax return in order to disclose their worldwide income. If you’re a US expat who lives in a low-tax country and earns above the Foreign Earned Income Exclusion threshold, you are likely to owe US tax.
Donald Trump's 2017 tax reform has had and will continue to have huge implications for US expats who have an investment in non-US businesses. The two main new laws in place relating to Controlled Foreign Corporations (CFCs): any non-US business that is at least half owned by US shareholders, each of whom owns at least 10%.
Many actors are considered self-employed when it comes to filing their taxes. When filing your regular year-end 1040 income tax file, you will also be required to file a 'Schedule C' and state all the 1099s you received throughout the year. There are many unique deductions actors are allowed to take advantage of - these should be reported on the 8829 form for home office deduction. Further to this, you will liable to self-employment tax in addition to federal income tax. Paying estimated quarterly taxes may be necessary on Form 1040-ES for some, but even if this isn't mandatory (your tax liability does not exceed $1,000), it can be a great way to budget throughout the year.