The 1040 form is the standard federal income tax form used to report an individual’s gross income. It is applicable even to the self-employed lot, with a threshold of $400.
This might seem like a really low threshold especially when single income earners are not required to file a tax return unless their income exceeds $12000. The threshold for married couples filing together exceeds $24,000.
The reason behind this is what they call the “self-employment tax”
The Self-Employment Tax
It’s called the self-employment tax if a person earns money outside of W-2 employer. However, to everyone else, it is called FICA.
FICA or Federal Insurance Corporations Act is the law that created the said tax. This is the tax that the government collects to fund Social Security and Medicare. As a salaried employee, this is collected through the tax deducted from your monthly paychecks. The normal tax rate is 7.65% on income up to $128,400 for the fiscal year 2018 and $132,900 for 2019.
Another thing that employees often fail to realize is that this is only half of the actual tax, the rest is paid by the W-2 employers.
For a self-employed person, this essentially means that they serve the roles of both – employer and employee. The rate to which your net business is subjected to is 15.3% of your income.
As per IRS guidelines, a self-employed individual is required to pay this tax if their net income is higher than $400. Normally, the net business income is claimed on the basis of Schedule C (or Schedule C-EZ), and your self-employment income is calculated on the basis of SE. There is really no need for you to bother your head with the minute details of the whole jargon. MyTaxFiler can act as your trusted friend when it comes to tax return filing.
The Self-Employment + Federal Income Tax
Just as the salaried employees, even the self-employed people are supposed to pay both income tax and federal income tax on their net income business.
If you’re a single filer with a net income less than $12,000, you probably won’t have to pay federal tax. However, if you make a profit, you will be required to pay self-employment tax on that particular amount.
This is because, even with $12,000 income, your income is above the threshold for the self-employment tax bracket. Thus, your profits are eligible to fall under self-employment tax.
Thus, whether employed by any organization or self-employed, you need to consider all the tax implications you are eligible for and file accordingly.
If you are having troubles with your filing process, feel free to drop in a mail at email@example.com or call us at (888)-482-0279.