Individuals who are considered self-employed must still pay taxes. Self-employment taxes are contributions made to Social Security and Medicare, generally through quarterly payments known as estimated tax payments.
Self-employment tax applies to anyone who makes $400.00 or more. In these cases, the taxpayer must file a Schedule SE (Form 1040) to pay self-employment taxes, since withholdings are not taken on their income.
Self-employed taxpayers meet any of the following conditions:
- They are a sole proprietor or independent contractor for a business or trade.
- They are a member of a business or trade partnership.
- They conduct business on behalf of themselves.
Definition of Business and Trade
Business or trade is considered when one performs services as a means of making a profit. Each situation is different when it comes to determining what is classified as a business or trade. How often you perform the service and the regularity of transactions are important in determining if your activity is a business or trade. You aren’t required to make a profit in order to be considered self-employed, however, you must be attempting to profit and further the business.
You don’t have to perform your services or activity full-time to be considered self-employed. You can work full-time as an employee of another company, and still have a part-time business that falls under the self-employment guidelines.