Earning on the Internet? Keep It Legal - The Self Employment Tax

For those who earn through their own efforts, there’s another extra surprise lurking over your income: the self employment tax. Are you earning money online? Are you selling products that others are buying, gaining revenue through advertising or otherwise receiving payment for your entrepreneurial efforts? No matter how much you’ve earned, you’re considered an independent contractor. And now, you’re going to have to pay for it.

It’s called the self employment tax, and it’s very important if you plan to keep your income legal. All the money you earn on the Internet must be claimed for income tax purposes, but that doesn’t mean income taxes are the only thing you’re going to owe. Income you earn as an independent contractor is also subject to the self employment tax, an extra payment on top of standard income taxes.

Unlike income taxes, the self employment tax is not on a sliding scale. To figure up the cost of self employment taxes you will owe, first figure out your net self employment income. This amount is multiplied by 92.35%. The resulting number is your net earnings for the year. This amount will then get multiplied by 15.3%, up to $76,000 in earnings. Any additional income you earn beyond the $76,000 mark will be multiplied by 2.9%.

What’s the result? The amount of self employment tax you must pay. The formula is notoriously confusing for independent contractors, but it usually equals about $14 on every $100 earned.

Next: Claim Expenses for Online Income >>
 

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