Today TaxMama® hears from Stanton in the TaxQuips Forum with this scenario. “A person by June 2012 will have earned $110,200 as an employee, with the maximum Social Security deducted. Then that person becomes an independent contractor for the balance of 2012. Is this person subject to the SS tax for the additional compensation over $110,200 she/he earns as an independent contractor for the remainder of 2012?”
(While I was writing my answer, a whole other discussion took place here. Regardless, the definitive answer is…naturally, mine.)
An independent contractor will file a Schedule C and pay taxes on the profit. When you fill out part B of the Schedule SE (Self-Employment Tax) – the longer version. Line 8 will take into account the Social Security wages on which the SE Taxes were already paid.
The independent contractor will still be paying Medicare taxes on the profits at 2.6%, since the Medicare tax has no earnings ceiling.
But, no, this doesn’t change the withholding at work. That’s totally separate. But more good news. If you find that you have overpaid the Social Security portion of the taxes, you will get a tax credit on the tax return – and get the overpayment back.
And remember, you can find answers to all kinds of questions about self-employment taxes, and other tax issues, free. Where? Where else? At www.TaxMama.com.[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join TaxMama.com link – it’s free!]
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