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Self-Employed vs. Employee Part. 1

Self-employed tax filers face many different tax issues as opposed to employed tax filers.

We’ve compiled some helpful tips for individuals that are dealing with self-employment tax issues.

Individuals are considered self-employed if they:

  • Carry on a trade or business as a sole proprietor or an independent contractor.
  • Are a member of a partnership that carries on a trade or business.
  • Are otherwise in business for yourself (including a part-time business)

An individual is considered an employee if:

  • Under common-law rules, anyone who performs services for an employer is an employee if the employer can control what will be done and how it will be done.
    • If the person is classified as an employee they must have an Employer Identification Number (EIN).
    • The employer’s tax responsibilities include withholding, depositing, reporting, and paying employment taxes.

Thus, the first point to remember is that self-employed taxpayers are required to pay self-employment tax in addition to income tax.

Secondly, Self-employment tax is comprised of Social Security and Medicare tax.

Employees do not need to additionally pay this tax since their employer already withholds the Social Security and Medicare tax from the employee’s paychecks.

It is the responsibility of the employer to remit this withholding to the IRS.

The responsibility is on the self-employed individual (as opposed to the employer) to submit Medicare and Social Security to the IRS.

Stay tuned Monday for the pros and cons to using different types of tax forms!

Feel free to email us or message us if you are self employed or an employee and have additional thoughts!

Written By: Nushin Zarrabi 



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