Is one-half of Self Employment Tax deductible?


If you had net earnings from self employment of $400.00 or more you are probably liable for Self Employment Tax. Net earnings are calculated by subtracting ordinary and necessary trade or business expenses from your total self employment income on your tax return. You are self employed for this purpose if you are a sole proprietor, an independent contractor, a member of a partnership, or are otherwise in business for yourself. You can be liable for paying self employment tax even if you are currently receiving Social Security benefits.

If you had a small profit or net loss from your business but want to pay into the Social Security system, you may be eligible to file Form 1040, Schedule SE and use one of the two optional methods to compute your net earnings from self employment. See IRS Publication 533, Self Employment Tax, to see if you qualify to use an optional self employment tax computation method. This self employment tax computation method may also allow you to qualify for the earned income tax credit or the child and dependent care tax credit.

Self employed persons can deduct one-half of their self employment tax on Form 1040, Line 27.

Married couples who are both self employed may each deduct one-half of their respective self employment tax on their tax return.

Maximum Wages Subject to Social Security tax

$106,800.00

Social Security tax rate (Employee)

6.20%

Maximum Social Security tax (Employee)

$6,621.00

Social Security tax rate (Employer) 

6.20%

Maximum Social Security tax (Employer) 

$6,621.00

Social Security tax rate (Self Employed) 

12.40%

Maximum Social Security tax (Self Employed) 

$13,243.00

Maximum Wages Subject to Medicare tax

Unlimited

Medicare tax rate (Employee) 

1.45%

Medicare tax rate (Employer) 

1.45%

Medicare tax rate (Self Employed)

2.90%

Footnotes:
1
 Self employed persons are entitled to deduct one-half of their self employment tax on Line 27 of Form 1040.

Self Employment Tax is computed on Schedule SE of Form 1040 and reported on line 56 of Form 1040 for 2009

If you are an employee of a church or qualified church-controlled organization that elected exemption from Social Security and Medicare tax, you must pay self employment tax if you are paid $108.28 or more in a tax year. If you are required to pay self employment tax, you must file Form 1040 and attach Schedule SE. For more information on church related income and self employment tax see IRS Publication 517.

 

 

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