Self Employment Tax in San Francisco, California
In San Francisco, California, there are certain taxes that are placed on employees, which are deducted from their paychecks. The mostly 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 extremely important to know that, if you are self-employed, you still have to pay those taxes, and it's also up to you to figure out exactly how much you owe, to ensure that you don't pay more or less than you are required to.
Usually, 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 handle 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 San Francisco, California
If you are an independent contractor, or run a sole proprietorship (a company which you own, and which is not incorporated as a separate legal entity), you must pay the so-called "self-employment tax" if your income from self-employment is greater than $400 per year.
Employees in a regular employer/employee relationship do enjoy one significant perk that the self-employed do not: their Social Security and Medicare contributions are matched by their employers. So, if you pay $100 in Social Security and Medicare taxes with every paycheck, your employer has to match that. This effectively doubles your contribution to these programs, without doubling their financial burden on you.
However, if you are self-employed in San Francisco, California, you are liable to pay both the employee and employer share of the employment tax. Effectively, this means that the employment tax for self-employed individuals is double what it would be for regular employees.
The total self-employment tax (note that this is completely distinct from the income tax) is set at 15.3%, if your income from self-employment in San Francisco, California exceeds $400. However, half of this tax is deducted from your income, for income tax purposes. So, this means that, at most, the self-employed only have to pay income on 92% of their total income, and that amount may be lowered with additional deductions for which you may be eligible. This means that, effectively, the self-employment tax rate is only 14%, as opposed to 15.3%
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Can a San Francisco, California Tax Attorney Help?
Self-employed individuals in San Francisco must ensure that they keep good, thorough 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 help you with your legal tax issues.
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 San Francisco, California, 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 serious legal issue over your self-employment tax liability, a tax attorney may prove to be invaluable.
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