What is self-employment income?
Self-employment income is money earned by an individual who works for themselves rather than for an employer. This can include income from freelance work, consulting, or running a small business. Self-employed individuals are responsible for paying their own taxes and are not eligible for certain benefits that are available to employees, such as health insurance or retirement plans.
How is self-employment income taxed?
Self-employment income is subject to both income tax and self-employment tax, which is a Social Security and Medicare tax for self-employed individuals. The self-employment tax rate is currently 15.3% on the first $137,700 of net income and 2.9% on any income above that amount. Self-employed individuals are required to file an annual tax return and pay estimated taxes quarterly.
What expenses can be deducted from self-employment income?
Self-employed individuals can deduct certain business expenses from their self-employment income to reduce their taxable income. These expenses can include things like office supplies, equipment, travel expenses, and home office expenses. It's important to keep detailed records of these expenses in order to accurately claim them on your tax return.
What are some challenges of self-employment income?
Self-employment income can be unpredictable, as income can vary from month to month or year to year. Self-employed individuals also have to manage their own finances, including paying taxes and saving for retirement. Additionally, self-employed individuals may not have access to certain benefits that are available to employees, such as health insurance or paid time off.
Nick Simpson
Founder @ WorkMade
I started working for myself at 9. My first tax bill showed up at 14. I didn’t understand it, and nobody around me could really explain it. If you’ve been there, you get it. Twenty years later, after creative directing for brands in New York and buying and selling a few companies, I kept seeing the same thing: smart, talented people losing money to a system that wasn’t built for how they work. That’s why I built WorkMade. Not to make taxes “easier to understand” but to make them disappear into the background, so you can get on with your life.