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Other replies got it mostly right. There's a particular tax in the US to pay for Social Security and Medicare. If you're employed, your employer pays a half sha
by Cushman 16y ago
Other replies got it mostly right. There's a particular tax in the US to pay for Social Security and Medicare. If you're employed, your employer pays a half share of that in payroll tax. If you're self-employed, you have to pay the whole thing— about 15% off the top (up to ~$100,000) before paying standard income tax. That's called the Self-Employment tax.
Self-Employment tax applies even if you wind up not owing any income tax. You get the benefit of being able to deduct business expenses, which employees can't do, but that usually doesn't make up the difference.
- trustfundbaby 16y ago> If you're employed, your employer pays a half share of that in payroll tax. If you're self-employed, you have to pay the whole thing Thanks for explaining that! I've been self employed for 6-7 years and I never could figure out the reason why this was (never really took the time to)
- sheats 16y agoOne thing you can do to decrease your taxes is form an S-Corp. That allows you to pay yourself a moderate salary of 50K a year on which you pay all the income taxes. The rest you make you can take out as dividends and only pay dividend taxes on it.
- ryanwaggoner 16y agoGet a good CPA before you try this; the IRS takes a very dim view of people doing this where the revenue is all based on a service that 1 person is offering.