Maxine Aaronson, Attorney at Law
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Tax Newsletter

Funding Retirement: Self-Employment Tax

The Internal Revenue Service requires certain individuals who have a trade or business to pay self-employment tax. What is the reason for this?

Social Security Withholdings

If you work for someone else, your employer is required under federal law to withhold certain amounts for Social Security coverage when you retire. Social Security coverage includes retirement benefits, disability benefits, survivor benefits, and hospital insurance benefits (Medicare).

Preparing for Your Retirement

When you are self-employed, you are responsible for making these Social Security contributions on your own, by way of the self-employment tax. It is very important that you carefully calculate the proper amount you must pay. Failure to do so may result in a lower amount of Social Security benefits when you retire.

You Must Still Qualify for Social Security

The Social Security Administration (SSA) regulates Social Security benefits. You qualify for Social Security benefits if:

  • You have a Social Security number
  • You earn the required number of credits, based upon amount of income earned per quarter. Currently the maximum number of credits you can earn per year is four.

File On Time

You must file your tax returns, and report self-employment income, in a timely manner. The Social Security Administration will not give you credit for self-employment income reported after a period of time from the year in which the income was earned. And if the SSA needs to make adjustments because of a late reporting, it will be to remove or reduce your coverage, not increase it.

  • IRS Penalties
    Many taxpayers at one time or another find themselves in a situation where they either did not file their Federal Income Tax return on time and/or filed their tax return without making the necessary payment for the tax year covered. In... Read more.
  • Reliance Upon an Expert as Cause for Tax Fraud
    When a taxpayer fails to file a tax return or to pay a tax that is due, the IRS will impose a penalty. However, a taxpayer will be excused from paying the penalty for failure to file or pay if he or she shows that there was reasonable... Read more.
  • Tax Treatment of Payments Mischaracterized as Alimony
    Three major issues commonly resolved in a divorce decree or agreement are: alimony, or spousal support; division of property; and child support. Each has its own tax treatment and implications. In general, for federal income tax... Read more.
  • Joint Tax Returns and the Innocent Spouse Doctrine
    Many married couples file joint tax returns to take advantage of certain benefits offered by this filing status. This may result in the unfortunate and unintended consequence of one spouse being held responsible for the underreporting... Read more.
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