Self Employment Tax in Show Low, Arizona
In Show Low, Arizona, there are specific taxes that are placed 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 crucial 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.
In most cases, employers make all the necessary calculations to determine how much needs to be deducted from an employee's check to pay these taxes. It's typically very simple, and any decent payroll software can automate this process. But the self-employed are liable for figuring this out for themselves, or hiring an accountant to do it.
Self-Employment tax obligations in Show Low, Arizona
If you primarily work as an independent contractor, or are the owner of a sole proprietorship, you have to pay what's typically referred to as the "self-employment tax," if your annual income from self-employment is over $400.
For usual employees, Social Security and Medicare payments are made in equal parts by the employee and employer. This essentially means that every employee's contribution to his or her future Medicare and Social Security benefits is matched by the employer.
However, the self-employed in Show Low, Arizona are responsible for making the employer AND employee contributions to those programs, essentially doubling what they would have to pay if they were employed by someone else.
Self-employed workers in Show Low, Arizona 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 Show Low, Arizona Tax Attorney Help?
If you are self-employed in Show Low, it's extremely important for you to be diligent in keeping records of your income and expenses, to ensure that you pay all the self-employment taxes that you owe (and also to make sure you don't over-pay). You may one day need a tax attorney to advise you with a legal issue, and they can help you far more effectively if you are able to quickly provide them with all the relevant information.
That said, if you are having trouble figuring out precisely how much self-employment tax you owe in Show Low, Arizona, a competent tax attorney shouldn't have any trouble helping you on that front. Likewise, if you end up in a dispute with the government over your self-employment tax obligation, a good tax attorney can give you the best possible chance of getting a favorable result.