Self Employment Tax in Montgomery County, Alabama
In Montgomery County, Alabama, there are particular taxes that are placed on employees, which are deducted from their paychecks. The generally 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 accountable for those taxes, and it's your responsibility to figure out what you owe.
Normally, 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 take 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 Montgomery County, Alabama
If you work as an independent contractor, or operate a sole proprietorship, you are deemed to be "self employed." You are required to pay the self-employment tax if your total income from self-employment exceeds $400 per year.
For people who are employed by another person or company, the employer normally matches the employee's contributions to Medicare and Social Security. This basically means that, when you look at your Medicare and Social Security tax statements on your paychecks, you can know that those programs are actually getting double what's shown there - with your employer covering the other half.
However, if you're self employed in Montgomery County, Alabama, or anywhere else, you are obligated to make the employee AND employer contributions to Social Security and Medicare, basically doubling your employment tax liability.
In Montgomery County, Alabama, self-employed business owners pay a self-employment tax rate of 15.3%. This is, of course, separate from, and additional to, whatever they pay in income tax. In an effort to partially offset this additional tax burden, half of what one pays in self-employment taxes can be deducted from their income when filing their income taxes. This means that the self employed pay income taxes on, at most, 92% of their income. And it's probably less, thanks to all the other deductions they might qualify for. This deduction lowers the effective self-employment tax rate to 14%, rather than the "official" rate of over 15%.
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Can a Montgomery County, Alabama Tax Attorney Help?
If you are self-employed in Montgomery County, it's necessary that you keep good records of your income and expenses, because a tax attorney will only be able to assist you to the extent that you help yourself.
With all that said, if you are having difficulty determining just how much money you owe in Medicare and Social Security taxes from self-employment in Montgomery County, Alabama, and keep good financial records, it should be relatively easy for a decent tax attorney to help you. And, if you end up facing a more severe legal issue over your self-employment tax liability, a tax attorney may prove to be invaluable.