Wrong Treatment of Employees as Independent Contractors. If a worker is in reality an employee, but receives a Form 1099-MISC from the business paying the compensation, the worker has two choices:
- Go along with the way the business classified the worker, file Schedule C and Schedule SE, and pay self-employment (SE) tax on the earnings, or
- File Form SS-8 - If this form is filed the IRS will then decide if the worker should have been treated as an employee, along with tax withholding and paying one-half of the employee's FICA.
To see examples of workers that are considered self employed click here.
Who Pays Self-Employment Tax? Taxpayers pay SE tax when earnings from self-employment are $400 or more. A taxpayer is self-employed if he or she carries on a trade or business as a sole proprietor (including farmers) or as a general partner in a partnership. A trade or business generally is an activity carried on for a livelihood or in good faith to make a profit. (read more)
Claiming all deductions. Failing to claim all deductions related to self-employment violates the Self-Employment Contributions Act of 1954. The act requires every taxpayer to claim all of his or her allowable deductions, including depreciation, in computing net earnings from self-employment for SE tax purposes. Penalties apply for making a false statement or representation in connection with any matter arising under the act.
Self-Employment Tax Optional Methods. There are optional methods designed to give taxpayers credit for Social Security coverage in years when the taxpayer otherwise has a loss or small amount of income from self-employment. They may also be used to help taxpayers qualify for the earned income credit, the additional child tax credit, the child and dependent care credit, and the self-employed health insurance deduction. (read more)
To display instructions for entering Schedule SE in the tax program click here.
NOTE: This is a guide on entering Schedule SE into the TaxSlayer Pro program. This is not intended as tax advice. For additional information refer to the Additional Links below.
Last Updated: 4/1/2015