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Ask HN: Self employment tax? [US]
I'm reviewing what my CPA sent me.. it looks like individuals (contractors) get fucked with self employment tax in the US. Is there a way around this? I netted less than 100k and my effective tax rate is almost 40% according to self-employment tax + income tax
- prostoalex 11y agoIt comes with much more liberal SEP-IRA rules (25% of gross, not capped at $5,500) and deductions (health insurance purchases are deductible for self-employed), leave alone the commonly known things, such as deductions for transportation, entertainment, etc. so you have way more ways to minimize the taxable portion of the income.
- mpierce9447 11y agoIf somebody operates as your EOR (Employer of Record) your self employment tax goes away! You also get taxes deducted out of each pay check allowing for a much easier budgeting situation. Let me know if you have any additional questions.
- giaour 11y ago"Self-employment tax" is a euphemism for having to pay both the employer and the employee portions of the payroll tax. There is no separate tax levied on the self-employed. The OP would need to find someone to both become their employer of record AND pay the employer portion of their payroll taxes.
- glitch273 11y agoCreate an LLC and elect to file as S-corp status for tax purposes. You pay yourself a fair salary (so that IRS will be content) and the rest can be considered pass through income taxed only at your income bracket. For example, say you earned 300k last year. A fair salary for a developer might be 70k. You pay income tax and self employment tax on the 70k but only income tax on the remaining 230k. I am not your lawyer or accountant so take the above advice with caution.