Self Employment Tax in Pelham, Alabama
In Pelham, Alabama, there are specific taxes that are imposed on employees, which are deducted from their paychecks. The typically well-known employment taxes are the Medicare and Social Security tax, for which a small percentage of every employee's paycheck is deducted.
It's important to note that if you are self-employed, you're still responsible for those taxes, and it's your responsibility to figure out what you owe.
Typically, it's the employer who makes all these calculations, and the employee doesn't have to think about it. Most larger employers have payroll departments to oversee these matters, making it pretty simple for them. But, if you are self-employed, it's up to you to accurately determine what you have to pay in self-employment taxes
Self-Employment tax obligations in Pelham, Alabama
If you work as an independent contractor, or operate a sole proprietorship, you are deemed to be "self employed." You are obliged to pay the self-employment tax if your total income from self-employment exceeds $400 per year.
Workers who are employed by someone else enjoy at least one perk that the self-employed do not: their employer matches their Social Security and Medicare contributions, essentially doubling the amount of money that's contributed to these funds on the employee's behalf.
But, self-employed workers in Pelham, Alabama must make both the employee and employer contributions. Thus, this means that the Medicare and Social Security tax liabilities apply doubly to the self-employed.
Self-employed workers in Pelham, Alabama pay a self-employment tax rate of 15.3% of their income that's derived from self-employment. However, half of whatever they end up paying in self-employment tax is deductible from income tax. This essentially creates a tax deduction of nearly 8% of one's income, requiring you to only pay taxes on 92% of what you earn. Additional tax deductions may lower that number further. When this deduction is taken into account, the self-employment tax rate is effectively 14%, as opposed to over 15%.
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Can a Pelham, Alabama Tax Attorney Help?
Self-employed individuals in Pelham must ensure that they keep good, accurate financial records. This makes it much easier to determine what you owe, and, if you need a tax attorney, it makes it easier for them to advise you with your legal tax concerns.
Thus, if you have some trouble figuring out what you owe in self-employment taxes, for whatever reason, chances are good that a knowledgeable tax attorney in Pelham, Alabama can advise you with much trouble, and can provide you with good legal and financial advice, which can help you head off much more significant legal and financial issues.