Self Employment Tax in Phoenix, Arizona
In Phoenix, Arizona, 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.
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 Phoenix, Arizona
If you primarily work as an independent contractor, or are the owner of a sole proprietorship, you have to pay what's commonly 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.
But, self-employed workers in Phoenix, Arizona 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.
In Phoenix, Arizona, 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 Phoenix, Arizona Tax Attorney Help?
If you are self-employed in Phoenix, 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 Phoenix, 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.
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