Member of Russell Bedford International, a global network of independent professional service firms.
Member of Russell Bedford International, a global network of independent professional service firms.
In this latest episode of Small Business Focus, Tax Manager, Eric Challenger, breaks down the fundamentals of self-employment tax, including what it is, who it applies to and how it’s calculated. Whether you’re a freelancer, sole proprietor or a new business owner, understanding self-employment tax is essential to avoiding surprises at filing time and planning effectively for your finanacial success.
Transcript
Congratulations. You finally started your own business. Years of working for somebody else are finally over. Now you set your own schedule and reap 100% of the profits from your hard work. Unfortunately, what they don’t tell you is that even though you don’t have any traditional payroll, you still have to pay payroll taxes on your self-employment income in the form of the dreaded self-employment tax. Many new business owners are unaware of this tax and feel bamboozled by their accountants when they go to file their returns for the first time and are notified of this extra tax.
Self-employment income is the earned income derived from the business operations for people who operate as independent contractors, freelancers, sole proprietors, single -member LLCs, and some other small business owners. All SE income is subject to SE taxes. Typically, this applies to all business owners who are either disregarded entities or partners in a service partnership. Disregarded entity is a business that, one, has a single owner or two, not organized as a corporation or three, not elected to be taxed as a separate business entity. Even if you have elected to be treated as a partnership, you may still be subject to SE taxes on your flow through SE income.
SE tax is essentially payroll tax, charged at the individual level on Form 1040 to disregarded entities and partners receiving flowed through SE income. SE tax is comprised of two parts, Social Security tax and Medicare tax. As an employee, you would consistently see those extra withholdings on each check in tandem with your income tax withholdings. What you didn’t see was that your former employer was paying a matching amount on those taxes to the government. What? They were paid twice? Yes. And as the owner of your business, acting as the employer and the employee, you now get to pay both sides to a whopping total of 15.3%. The Social Security tax makes up 12.4 % and the Medicare tax makes up 2.9% for the total 15.3. However, there is some relief as the Social Security tax is capped annually after achieving a certain wage base. For 2025, that limit is $176,100. But you still have to pay the 2.9 % on the amount over that, and the Medicare tax bumps up to an additional 3.8 % for people making over $200,000 if you’re single or $250,000 if you’re filing jointly.
SE tax is calculated on your net income from operations of your business. Net income includes all of your offsets and proper business deductions, including one half of the SE tax, the employer’s side. Net income for disregarded entities is calculated on your Schedule C, profit, or loss from business. For partners in a partnership, it is flowing through your K-1, line 14, and reported on Schedule E, page 2. The tax itself is calculated on Schedule SE and includes all your SE income from all sources.
Although the tax is calculated on your return, you are required to pay as you go using the estimated tax payment system. For more information on how to make estimated taxes, please check out our other newsletters and audio blogs on the subject. Hopefully you’ve stumbled on to this article while doing your homework for starting your own business. For those of you researching after you’ve already gotten your tax bill, I’m sorry. For next year, seek out the small business experts at CK to help you better understand your SE tax requirements and how to prepare for them in advance. For more information, on small business tax topics, please visit our website at www.craykaiser.com or give us a call at 630-953-4900. Thank you for listening.
In this audio blog, CK Tax Principal, Karen Snodgrass shares insights from the Russell Bedford International Tax Conference she attended in 2023. This includes:
If you have any questions pertaining to our learnings at the Russell Bedford International Tax Conference, please contact us or call our office at 630-953-4900.
In this audio blog, CK Principal Karen Snodgrass addresses some common questions surrounding the Employee Retention Credit (ERC), including:
If you have questions about the Employee Retention Credit, don’t hesitate to contact Cray Kaiser today.
If you’ve spent any time on LinkedIn lately you’ve no doubt seen multiple posts talking about company culture, all with the similar theme—culture can make or break an organization.
At Cray Kaiser we are extremely proud of the company culture we have created. Our core values of education, integrity, people, care and trust define our work and our actions.
CK is not just an accounting firm, we are a community. Our family atmosphere promotes strong relationships. We care not only about our work, but about each other on a personal level. Which leads to greater engagement and a healthy work environment.
We believe that every member of our team has something to offer, regardless of title or experience level. We all have a common goal, and everyone contributes to the success of the firm and our clients.
To learn more about our culture listen to what Aaron McWilliams, Eva Koziel, Raimonda Kesler, and Maria Gordon have to say.
As college students are heading back to campus and beginning to hunt for the perfect internship, Cray Kaiser asked interns Thomas Cirrincione and Priyangiben Patel to reflect on their time at CK. From discussing their daily roles as interns to sharing their favorite parts of the experience, listen in on how impactful a CK internship can be for you!
In his two summers interning at Cray Kaiser, Thomas Cirrincione experienced many aspects of the business, from administrative work to employee audits and working in the field. His time at CK allowed him to connect the dots between classroom curriculum and real-world situations.
Hear Thomas reflect on his time spent interning with the CK Team in the audio recording below.
Priyangiben interned with Cray Kaiser for seven months and is excited to apply the knowledge she gained at CK when she heads back to the classroom. She credits Cray Kaiser with giving her clarity on which aspect of accounting to pursue after her graduation from DePaul University.
Listen to Priyangiben’s audio blog below to hear more about her CK internship experience.
If you are interested in learning more about internship opportunities at Cray Kaiser, learn more here.
Studies show that workplace mentors have a positive impact on mentees, mentors, and organizations, including improved employee engagement, retention, inclusion, and career outcomes.
As showcased in our Core Values, our People and Education are at the center of our success. The growth and advancement of our team members, through strong mentor and mentee relationships, are an integral part of how we operate at Cray Kaiser, with senior employees taking an active role in career development.
The Mentor Program provides guidance, support and understanding by sharing experiences and knowledge to help employees reach their full potential; a win for everyone.
Weekly Planning on Demanding Schedules or PODS meetings provide a time for staff to check in with their supervisor or manager. These weekly touchpoints are a platform to address training opportunities and promote communication throughout the firm. The PODS also assist in onboarding new staff and allowing them to experience CK with a buddy.
To learn more about these opportunities we provide to employees, click below to hear what teammates Kayla Daniels, Maria Gordon, and Rolake Adedara have to say about mentorship at Cray Kaiser.
We’ve all learned a number of things over this past year and a half, and most important is creating flexibility for our team members. We were able to successfully shift to a hybrid work model, splitting time between the office and working from home. Leveraging technology, increasing communication and team support, allowed Cray Kaiser to move to a hybrid work model going forward.
We allow employees to schedule their week in advance, by selecting a few days a week to work from home with the remaining days at our Oakbrook Terrace office. This model enhances the employee experience by allowing them flexibility with continued connection with team members. For individuals looking for a flex-time experience, we work with them to determine the level of their contribution without compromising their career and growth objectives.
CK is also passionate about maintaining open lines of communication. We equip our team with the tools and resources they need to ensure we are always on the same page.
To learn more about Cray Kaiser’s hybrid working arrangement, check out these audio blogs from one of our Senior Assurance Accountants, Kayla Daniels.
In this audio blog. CK Tax Manager Eric Challenger, CPA shares important tax information for independent contractors including:
Listen to Eric outline what you need to know if you are filing taxes as an independent contractor:
Note – To listen to this audio blog, please make sure you are not using Internet Explorer as your browser.
If you are an independent contractor and need help filing taxes, please don’t hesitate to contact Cray Kaiser today.
In this audio blog, CK Principal Karen Snodgrass addresses some common questions surrounding potential future COVID-19 relief, including:
Of course, we don’t know exactly what will happen in the coming months. With a new administration and the pandemic still surging, there is a lot at play. Rest assured, as developments occur, we’ll be sure to keep you informed on our blog. In the meantime, you can listen to Karen’s current insights and predictions of future COVID-19 relief below:
If you have any questions about current or future COVID-19 relief, please don’t hesitate to contact Cray Kaiser today.
Please note that this blog is based on laws effective on Friday, January 15 and may not contain later amendments. Please contact Cray Kaiser for most recent information.
Following the results of the Georgia runoff elections, we know that the Democrats hold the majority in Congress. As a result, there is a lot of speculation about President-Elect Biden’s tax plan and what changes we can potentially expect in the future. In this audio blog, CK Principal Karen Snodgrass addresses the speculation and how you can prepare:
Of course, we don’t know exactly what will happen in the coming months. With a new administration and the pandemic still surging, there is a lot at play. Rest assured, as developments occur, we’ll be sure to keep you informed on our blog. In the meantime, you can listen to Karen’s insights and predictions below:
If you have any questions about President-Elect Biden’s tax plan, please don’t hesitate to contact Cray Kaiser today.
Please note that this blog is based on laws effective on Friday, January 15 and may not contain later amendments. Please contact Cray Kaiser for most recent information.
