Guide to Starting and Operating a Small Business | 2018 Guide to Starting and Operating a Small Business - Page 33

6 Social Security and Medicare for the Self- Employed The majority of people who pay into Social Security work for someone else and their employer deducts Social Security taxes from their paycheck, matches that contribution, and sends wage reports and taxes to the Internal Revenue Service and Social Security. Self-employed people must fill out the forms and pay the taxes directly to the government. You are considered self-employed if you operate a trade, business, or profession either by yourself or as a partner, or report your earnings for Social Security when you file your federal income tax return. If your net earnings are $400 or more in a year, you must report your earnings on Schedule SE. For more detailed information on all taxes related to employment visit www.irs.gov/pub/irs-pdf/p15.pdf to download a copy of Publication 15 (Circular E) “Employer's Tax Guide for Use in 2017.” It is also strongly recommended to consult with a professional on all matters pertaining to business taxes as application of rules and credits can be complicated and subject to change. Paying Social Security and Medicare Taxes The FICA tax rate paid by both employer and withholding from employee, is the combination of social security tax rate of 6.2% and the Medicare tax rate of 1.45% for a total of 7.65% (at time of publication). For more specific information on self-employment taxes, you can download an SSA information document “If You are Self Employed” at: www.socialsecurity.gov/pubs/EN-05-10022.pdf The Social Security Administration (SSA) announced the 2017 wage base limit for the social security tax will be $127,200. As in prior years, there is no limit to the wages subject to the Medicare tax. For self-employed individuals, the social security wage limit as of 2017 will also be $127,200 and there is no limit on self-employment income that will be subject to the Medicare tax. The self-employment tax rate will be 15.3% (combined social security tax rate of 12.4% and Medicare tax rate of 2.9%). Additional Medicare Tax/ Patient Protection and Affordable Care Act. While there may be future changes to status of the Patient Protection and Affordable Care Act (Affordable Care Act or ACA), at time of printing there remains an extra 0.9% Medicare tax required on wages that exceed a threshold amount based on the individual’s filing status. Employers will not pay the extra tax. The threshold amounts are: $250,000 for married taxpayers who file jointly; $125,000 for married taxpayers who file separately; and $200,000 for all other taxpayers. More specific information is available at www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Questions- and-Answers-for-the-Additional-Medicare-Tax Electronic Federal Tax Payment System (EFTPS). It is important to note that federal tax deposits must be made by electronic funds transfer generally using the Electronic Federal Tax Payment System (EFTPS), a free service provided by the Department of Treasury. Or you can arrange for electronic deposits through a third party such as your tax professional or financial institution though those services may have a fee. For more information or to enroll in EFTPS, visit www.eftps.gov or call 800.555.4477 or 800.733.4829 (TDD). Social Security Earnings Credits You need earnings credits to qualify for Social Security benefits. Each year, people earn a certain number of 31