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.
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.
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.
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.